Multi Step Income Statement: Meaning, Elements, Examples, and Many More

Managing the accounts of a business comes with different types of statements, like cash flow statements and balance sheets. One big picture in this pool is the income statement, mostly prepared as a multi-statement income statement.

It is nothing but an advanced form of single step income statement that involves the computation of gross profit and a detailed classification of operating and non-operating elements.

This makes the multi step income statement a topic of discussion for the upcoming accountants. So, let’s discuss it deeply and understand its different aspects. 

What is Multi Step Income Statement? 

A multi-step income statement is the financial statement that companies use to show and present their financial records concerned with revenue, expenses, and different types of costs. It isolates the operating revenue and operating expenses from the non-operating revenue and expenses to give a clear presentation of the records. Mostly used for cost accounting and standard costing, it provides a detailed breakdown of costs. 

Different Elements of Multi Step Income Statement 

The multi step income statement consists of three different heads, each comprising different components of the financial statement. As the accurate financial report is essential. Read the below-mentioned section to understand what multiple step income statement includes: 

Operating Head: Gross Profit 

When it comes to the different sections of the multi step income statement, gross profit is the first name that comes to mind. It is the component of the operating head that is obtained after deducting the cost of goods sold (COGS) from the total sales to assess the profitability of a company. 

Whether you own a manufacturing or product-based business, creditors use it to evaluate the credit-repaying ability of the company. 

Gross Profit = Net Sales – Cost of Goods Sold

Operating Head: Selling and Admin Expenses 

Coming after the gross profit, we got selling and admin expenses that comprise all the secondary costs spent on the product or services of the company. The selling expenses are like marketing expenses, salary to the salesperson, freight charges, etc.

Whereas the administration expenses are the indirect selling expenses that are connected with the sales, like rental expenses, utility expenses, supplies expenses, etc. When combined, the selling expenses and admin expenses are called the operating expenses. 

Operating Income = Gross Profit – Operating Expense 

Non-Operating Head 

Lastly, we got all the income and expenses of the business that are not connected to the main core activities of the business. This includes any income and expense made from non-core activities of a business, such as inventory write-offs, assets sales loss, interest paid on loans, asset sales gain, income on sale of loan, etc. 

Net Income = Net Operating Income + Non-Operating Income 

Multi Step Income Statement Example

Understanding the multi-step income statement is impracticable without actual analyses of the multistep income statement examples. Hence, we have brought you some examples to comprehend easily. 

1. 

Income Statement of Robert Solutions for the year ending in 2025 (in $)

Sales  Cost of Goods Sold (COGS)                                                              Gross Profit Operating Expenses      Selling Expenses               Advertising Expenses:                           100              Sales Commission:                                300     Administrative Expenses               Supply Expense:                                      60              Rent Expense:                                        800 Total Operating Expenses                                          Income from Operations Non-Operating Income and Expenses      Insurance Proceeds      Interest Expenses           Total Operating                                                               Net Income

6,500 (1,400) 5,100 400 860 1,260 3,840 1,000 (750) 250 4,090

2. 

Income Statement of BizzBooz Pvt. Ltd. for the year ending in 2025 (in $)

Sales  Cost of Goods Sold (COGS)                                                              Gross Profit Operating Expenses      Selling Expenses               Advertising:                                           100              Utilities:                                                 300              Freight Out:                                           400              Depreciation:                                          50              Salaries:                                                 100     Administrative Expenses               Supply Expense:                                      60              Rent Expense:                                        800              Insurance:                                                60 Total Operating Expenses                                         Income from Operations Non-Operating Income and Expenses      Loss on Sale of Land       Insurance Proceeds       Interest Expenses       Total Operating                                                              Net Income

7,000 (1,000) 6,000 950 920 1,870 4,130 70 850 (400) 380 3,230

3. 

Income Statement of NexaSolve for the year ending in 2025 (in $)

Revenue  Cost of Goods Sold (COGS)                                                              Gross Profit Operating Expenses      Selling Expenses               Advertising Expenses:                           500              Payroll Taxes:                                         750              Travel and Entertainment:                  1,200              Sales Commission:                                500              Supplies:                                             1,000     Administrative Expenses               Supply Expense:                                    400              Office Equipment:                              2,000              Rent Expense:                                     1,200 Total Operating Expenses                                         Income from Operations Non-Operating Income and Expenses      Insurance Proceeds      Interest Expenses           Loss on Lawsuit      Total Operating                                                               Net Income

46,000 (14,000) 32,000 3,950 3,600 7,550 24,450 1,500 (750)  (900) (150) 24,300

Why Multi Step Income Statement Important? 

A multi-step income statement is an important measure that makes evaluating the financial health easy for businesses by providing deep insights into the performance to the company, investors, and stakeholders. It presents the gross profit while separating operating and non-operating expenses and income. 

Moreover, the multi step income statements are also used for financial ratio analyses of the company’s performance, like accounts payable turnover ratio, inventory turnover ratio, leverage ratio, etc. It can then further be used for comparing the performance of the different businesses in the competition. 

Multi Step Income Statement vs. Single Step Income Statement: Key Differences 

A single step income statement is a financial statement that uses a single equation to compute the net income of the business. As compared to the multiple step income statement, evaluation of the income from the single-step income statement is comparatively quicker and easier. This method involves revenue, expenses, and profit or loss generated during the year while using a single equation. The equation is as follows: 

Net Income = (Revenue + Gains) – (Expenses + Losses)

On the other hand, the multi step income statement uses three different income formulas. One is for the evaluation of gross profit, one for calculating operating income, and the last one for the computation of net income. 

Gross Profit = Net Sales – Cost of Goods Sold

Operating Income = Gross Profit – Operating Expense 

Net Income = Net Operating Income + Non-Operating Income 

Advantages and Disadvantages of Multi Step Income Statement 

Although the multi step income statement is a better choice when it comes to choosing between a multi-step and a single-step income statement, it comes with some cons as well. So make sure to focus your eyes on the advantages and disadvantages to not neglect any unique aspect. 

Conclusion 

Along with the financial stability, the multi step income statement also brings effective management of the financial records. Therefore, it is mostly used in big companies that are required to effectively maintain their records. 

Utmost precision and accuracy are musts in multi step income statement, or a small mistake can ruin the preparation process.