What is a Single Step Income Statement? Definition Meaning Example

The small-sized companies that are either sole-proprietor or partnership firms often use the single-step approach when generating the income statement. For instance, a small store that sells only mobile phones and accessories may only prepare a single-step income statement. Due to the diminutive size of business and limited variations of business activities, preparing the single-step income statement is sufficient enough for their business. Some companies prefer to use the single-step approach, whereas others will have to prepare the report using the multi-step method, abiding by the country’s law.

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• The calculation of net profit involves deducting the company’s total expenses from the total revenue.
• For example, there is no gross margin calculation, nor any expense breakdowns by department.
• This example of a single-step income statement from Accounting Explained shows the different sections covered in the report and the overall format of the content.
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• A company’s income statement will show the revenues, expenses, and profit or losses in a financial period.
• Understanding this type of income statement helps stakeholders make informed decisions without being overwhelmed by complex details.
• The resulting figure represents the net income, which is a key indicator of the company’s financial performance.

The first step in creating a single-step income statement is defining the reporting period for the document so that all the data you’re presenting is comparable. Generally, businesses choose to prepare income statements on a yearly, quarterly or monthly basis. Unlike corporations, which are required by law to release quarterly and annual financial statements, small businesses aren’t heavily regulated in terms of how often they need to prepare income statements. But since they detail important information about the profitability of your company, it can be helpful to prepare income statements monthly or quarterly.

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The revenue category will come first or right at the top and there is only one subtotal for each category. All the revenues including service revenue, consulting fees, investment income, etc. will be listed together under this one. To calculate your business’s net income, subtract your Expenses and Losses from your Revenues and Gains. If the net income is a positive number, then your business is reporting a profit for that reporting period. If the net income is a negative number, then your business is reporting a loss. This method only lists total revenues and total costs; you’ll need to break down details if you want exact numbers for each product or service.

Single-Step vs. Multiple-Step Income Statements: What’s the Difference?

A single step income statement is a format of income statement, which uses just a single subtraction i.e. the total of all revenues, incomes, and gains minus the total of all expenses and losses. The single-step format is particularly advantageous for small businesses or sole proprietorships that do not require a detailed analysis of their financial operations. It also aligns well with IRS requirements for tax reporting, providing a concise summary of financial performance. A single-step income statement is a method of reporting a business’ financial performance that lists its revenues, expenses, and profit for the period under one single head. As we can see, all the revenues and expenses have been listed under one heading. Although a single-step income statement is simpler and easier to understand, it does not provide the level of detail required by an external user.

• Generally, businesses choose to prepare income statements on a yearly, quarterly or monthly basis.
• An income statement is an accounting document that summarizes the net profit or loss of a company by subtracting the expenses from the income.
• Single-step statements don’t organize income and expense data by category.
• The first step in creating a single-step income statement is defining the reporting period for the document so that all the data you’re presenting is comparable.
• The final step in the calculation is to subtract the total expenses from the total revenues.

A multi-step income statement includes subtotals for gross profit, operating expenses, and non-operating expenses. This layered approach allows stakeholders to analyze different aspects of the business separately, making it easier to identify areas of strength and weakness. For instance, a company might have a strong gross profit but struggle with high operating expenses, which would be evident in a multi-step income statement but not as clear in a single-step format. This granularity is particularly useful for larger companies with diverse operations, where understanding the nuances of financial performance is essential for strategic planning and decision-making.

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Operating income is derived by further subtracting operating expenses from gross profit, highlighting the profitability of core business activities. Non-operating income and expenses, such as interest single step income statement and taxes, are then accounted for to arrive at the net income. A single-step income statement lists all revenues and expenses in one step to calculate net income, making it straightforward and easy to prepare.

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The multiple-step income statement may also increase the risk of errors due to its complexity. For instance, incorrect entries may not be easily identified if there are too many lines or categories listed on the statement. Find out the accounting equation to compute the net profit using the single-step income statement and examples of single-step income statement. The second category relating to expenses will appear right below the revenue category.

Single Step Income Statement

The net income or losses equals to the subtraction of the total amount of expenses from the total amount of revenues. Hence, the net profit of the company will generally appear at the bottom of the report. Single-step income statements open with a header conveying important information about the document. The header states the name of the company, identifies the report as an income statement and includes the time period covered in the document.