Single-step income statement definition
/What is a Single-Step Income Statement?
The single-step income statement presents information in a simplified format. It uses a single subtotal for all revenue line items and a single subtotal for all expense line items, with a net profit or loss appearing at the bottom of the report. This format is most commonly used by businesses that have relatively simple operations, with few line items reported. It is most commonly produced by lower-end accounting software packages.
Format of a Single-Step Income Statement
The following is a sample format for a single-step income statement:
| Revenues | $1,000,000 |
| Total revenue | $1,000,000 |
| Expenses | |
| Cost of goods sold | 350,000 |
| Advertising | 30,000 |
| Depreciation | 20,000 |
| Rent | 40,000 |
| Payroll taxes | 28,000 |
| Salaries and wages | 400,000 |
| Supplies | 32,000 |
| Travel and entertainment | 50,000 |
| Total Expenses | $950,000 |
| Net Income | $50,000 |
Advantages of a Single-Step Income Statement
A single-step income statement is a good format for a small business that has few types of expenses, and whose managers are less concerned with the formatting of the income statement. They can simply set up the accounting software and run a pre-packaged income statement format that lays out every expense in a separate line item.
Disadvantages of a Single-Step Income Statement
The single-step format is not heavily used, because it forces the readers of an income statement to separately summarize subsets of information within the income statement. For example, there is no gross margin calculation, nor any expense breakdowns by department. This makes it more difficult for users to extract useful information from an income statement. This is a particular concern for a larger and more complex organization, which has many departments and expenses.
Advantages of the Multi-Step Income Statement
For a more readable format, try the multi-step format, which is the format of choice for larger and multi-department organizations. Smaller businesses may start reporting their financial results with a single-step income statement and then switch to the multi-step format once their operations become larger and more complex.