What is a Single Step Income Statement?
Definition: A single-step income statement is a simplified record of the revenues and expenses of a business over a given accounting period.
All businesses are required to prepare financial statements for either internal or external use. The income statement is one of these statements and it helps users to understand the performance of the business in terms of profit and loss. Usually, the purpose of the income statement dictates if it will be single step or multi-step.
As opposed to the multi-step income statement, the single-step income statement offers non-detailed information concerning the activity of the business. This makes it easy to prepare and easy to read and to understand. Were this income statement to be represented in an equation, it would appear as shown below.
The straightforward nature of the income statement enables the user to catch a glimpse of what the businesses’ finances are in a given accounting period. Shareholders of a company find the single-step income statement quite useful because their major focus is the bottom line (net income). They rarely need to know the details of expenses because, eventually, any anomaly will reflect in the bottom line. In addition, the single-step income statement is useful to small businesses whose operations are unsophisticated. The small businesses find the single-step income statement easy because most of them do not have professional accountants on retainer.
Single-step Income Statement Example Format
The management for GHC, a ballast production company, wants the accountant to prepare a simple income statement for use in a meeting just five hours out. The accountant has the following information:
For the quarter ended December 31, 2019, total sales for GHC were $405,290 whereas the company earned $17,900 in the same quarter as interest revenue. During the three months, GHC incurred $180,700 as the cost of goods sold. Other expenses include $31,780 in wages and salaries, $12,000 in advertising, discretionary expenses worth $15,000, and $23,000 in depreciation expense.
Single Step Income Statement Template
Due to time constraints, the accountant decides to prepare a single-step income statement for the management. Here is how it looks like.
Income Statement for GHC for the quarter ended December 31, 2019.
| Description | Amount ($) | Total |
| Sales revenue | 405,290 | |
| Interest revenue | 17,900 | |
| TOTAL REVENUES (X) | 423,190 | |
| Cost of goods sold | 180,700 | |
| Wages and salaries | 31,780 | |
| Advertising expenses | 12,000 | |
| Discretionary expenses | 15,000 | |
| Depreciation expense | 23,000 | |
| TOTAL EXPENSES (Y) | 262,480 | |
| NET INCOME = (X – Y) | 160,710 |
From the example, it is clear that a single-step income statement does not break down revenues and expenses into details. Instead, the accountant uses broad figures. For example, the sales revenue line does not expound on the products sold. Additionally, the depreciation expense does not provide further information about, for instance, the asset being depreciated.
All you have is general information that will enable the user to get a snapshot of the company’s financial position. For example, if the impending meeting by management was about the question of if the business is making any surplus money, then this is easy to deduce. All one needs is to look at the value of the net income. If it is positive, then the business is healthy financially.
Single-Step Income Statement vs Multi-Step Income Statement – What’s the Difference?
Convenient as the may be, single–step income statements could be difficult for multinational corporations to produce. This is because they have complex operations whose financial reporting information cannot fit in a single-step income statement. In such as case, the company must use the multi-stage income statement. What are the major distinctions between the two structures of the income statement?
In the first place, multi-step income statements involve a siloed breakdown of all the items. For example, such a statement breaks down expenses into operational and non-operational costs. This allows for a deeper synthesis of the company’s finances. Secondly, multi-step income statements require a lot of time and energy to prepare. As such, a business must have a professional accountant on its payroll to prepare such a statement. The other option is to hire an accountancy firm, which is an expensive affair.