Income Statement Format

An income statement summarizes a company's financial performance. It shows all revenues and
expenses of the company for a period of time.
There are two ways of presenting an income statement. You can either present a (1) single-step income
statement, or (2) multi-step income statement.
Without question, a multi-step income statement is more organized (but more complicated) than the
single-step format. Here is how each would look like.

Single-Step Income Statement Format

ABC Company
Income Statement
For the Year Ended December 31, 2015
Revenues and Gains:
Sales
Interest Income
Gain on Sale of Investments
Loss on Sale of Equipment
Total Revenues and Gains

$ 120,000
6,000
5,000
(1,000)
$ 130,000

Expenses and Losses:

Cost of Sales
Salaries Expense
Utilities Expense
Supplies Expense
Depreciation Expense
Advertising Expense
Total Expenses and Losses

$ 62,000
18,000
10,000
8,000
5,000
2,000
$ 105,000

Income before Tax

Less: Income Tax Expense
Net Income

$ 25,000
9,750
$ 15,250

A single step income statement is quite straightforward. All revenues and gains are presented first,
followed by all expenses and losses. The difference is computed and subjected to income tax to get the
net income.

Multi-Step Income Statement Format

ABC Company
Income Statement
For the Year Ended December 31, 2015
Sales
Less: Cost of Sales
Gross Profit

$ 120,000
62,000
$ 58,000

Less: Operating Expenses

Selling Expenses
Salaries Expense - Sales
$ 10,000
Utilities Expense - Store
5,000
Store Supplies Expense
4,000
Depreciation Expense - Store
2,000
Advertising Expense
2,000 $ 23,000
Administrative Expenses
Salaries Expense - Office
$ 8,000
Utilities Expense - Office
5,000
Office Supplies Expense
4,000
Depreciation Expense - Office
3,000
20,000
Total Operating Expenses
$ 43,000
Operating Income
Other Revenues and Expenses
Interest Income
Gain on Sale of Investments
Loss on Sale of Equipment
Income before Tax
Less: Income Tax Expense
Net Income

$ 15,000
$ 6,000
5,000
(1,000)

10,000
$ 25,000
9,750
$ 15,250

In a multi-step income statement, several steps are taken before we could arrive at the net income. We
need to sequentially compute for:
1. Gross Profit = Sales - Cost of Sales
2. Total Operating Expenses = Selling Expenses + Administrative Expenses
3. Operating Income = Gross Profit - Total Operating Expenses
4. Income before Tax = Operating Income +/- Other Revenues and Expenses
5. Net Income = Income before Tax - Income Tax

First, the gross profit is computed by deducting cost of sales from sales. Then, all operating expenses are
presented. Operating expenses include selling expenses and administrative expenses.
Note: Some expenses are related partly to sales and partly to administration. When presenting selling
expenses separately from administrative expenses, the "partly" expenses should be allocated using a
reliable basis.
Gross profit minus operating expenses will give us the operating income. Then, we incorporate other
revenues and expenses to come up with the income to be subjected to tax. After deducting the tax, we
finally have the net income.