Your business's income statement is one of the basic financial reports. The income statement for a given accounting period shows the amount of revenue you brought in, your expenses and the net income or loss. The statement affects your company's earnings per share, which makes it important to investors and shareholders. You can present your income statement in a single or multiple-step format.
Formats
A single-step income statement adds together your revenues and other gains, then subtracts your expenses and losses to determine your business's net income. A multiple-step statement arrives at the same place more gradually. First you subtract the cost of goods sold from your gross sales to get gross profits. Then you subtract different categories of expense to get your operating income, then total your non-operating income and expenses and subtract that. After all these steps, you reach your net income.
Single Step
Because the single-step statement lumps operating and non-operating income together, readers can't tell how much income came from sales and how much from a one-time event, such as winning a lawsuit. Single-step also doesn't break out gross income, which is important: Gross income divided by net sales gives gross margin, one factor investors use to gauge a company's health. Another drawback is that single-step statements don't treat interest expense as a separate step, making it harder to judge the effect of the company's borrowing decisions on income.
Multiple Steps
If readers want to compare your company's finances with another's or get a feel for how your income this quarter compares to last quarter, a multiple-step income statement may overload them with details. A single-step statement that gives readers revenue, expense and net income may be easier to digest for quick analysis. The more complicated your company's finances and the more entries on the multiple-step statement, the greater the chance someone's eyes will glaze over when she reads it.
Considerations
Whatever format you use, the figures must be accurate. The statement must apply to a specific time frame, showing your net income at the end of the quarter, month or year. If you're using a statement to present a quick glimpse of your performance for the year, a single-step format might work fine. If you're making a formal filing with the Securities and Exchange Commission, you'll need a more detailed breakdown that conforms to federally approved accounting standards.
