How to Make a Multiple-Step Income Statement
An income statement is one of the four basic financial statements produced by businesses. It describes in detail a business's revenues and expenses for a specific period and sums them up as either net income or net loss. Revenues minus expenses equals net income or net loss. Multiple-step income statements group revenues and expenses into different categories and then either add or subtract them step by step in order to calculate net income or net loss.
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Instructions
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List and describe the business's net sales from operations in addition to other revenue sources before summing them up as total revenues for the period. For example, a business that made $100,000 in net sales and $20,000 in interest would have received total revenues of $120,000. For most businesses, this process is as simple as listing net sales because most businesses have no other sources of revenue. Net sales is the sales figure that normally appears on income statements and it is equal to gross sales minus sales returns, discounts, and allowances.
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List and describe the business's cost of sales for the period. Cost of sales refers to expenses incurred acquiring the products intended for sale that were sold in the period. Depending on the method the business uses to acquire its products, this might include purchase costs, direct manufacturing labor costs, and direct manufacturing materials costs. Deducting cost of sales from the business's total revenues produces its gross profit. Using the above example, if the business had spent $80,000 to purchase its sold products from its suppliers, it would have had total cost of sales of $80,000 and gross profit of $40,000.
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List and describe the business's operating expenses for the period. Operating expenses include all costs incurred by the business through revenue-producing activities. It includes a broad range of costs, including rent, utilities, advertising expense and salaries paid to administrative staff. Gross profit minus operating expenses is equal to the business's operating profit and in most cases, its profit before interest and taxes. Still using the above example, if the business had incurred salaries of $15,000 to be paid to its staff and $10,000 in rent and utility bills, it deducts this $25,000 in operating expenses from its gross profit of $40,000, leaving operating profit of $15,000.
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List and describe all other revenues and expenses that do not belong in other categories. Such items might include interest on loans, taxes and extraordinary gains or losses that are not expected to appear again on the next period's income statement. For example, the business might have taxes of $2,000 and an extraordinary gain of $3,000 from a legal settlement. Adding the extraordinary gain of $3,000 to that business's operating profit and then deducting the $2,000 in taxes produces the business's net income of $16,000.
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References
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