Single-Step vs Multi-Step Income Statement: Key Differences for Small Business Accounting

Small businesses have two reporting options when preparing an income statement: you can create a single-step income statement or a multi-step income statement. The format you choose depends on the type of business you own and the ultimate purpose of the income statement you’re creating. Both single-step and multi-step income statements report on the revenues, expenses and the profit or loss of a business during a specific reporting period.

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A single-step income statement offers a simple report of a business’s profit, using a single equation to calculate net income. A multi-step income statement, on the other hand, separates operational revenues and expenses from non-operational ones and follows a three-step process to calculate net income. Income statements, also called profit and loss statements, are one of the major financial statements prepared by businesses.

Explore these topics to discover the key differences between a single-step vs multi-step income statement:

What’s a Single-Step Income Statement?

What’s a Multi-Step Income Statement?

Single-Step vs Multi-Step Income Statement

Single-Step Income Statement Example

Multi-Step-Income Statement Example

Should I Prepare a Single-Step or Multi-Step Income Statement?

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Single-Step vs Multi-Step Income Statement

A single-step income statement gives a simple accounting of a business’s net income, whereas a multi-step income statement follows a three-step process to calculate net income, separating operational from non-operational revenues and expenses.

Advantages of Single-Step Income Statements

Easy to Prepare: Because single-step income statements require you to make fewer calculations and because they don’t break down operating versus non-operating line items, single-step reports take less time and effort to prepare.Easy to Read: The single-step income statement is a streamlined document. It focuses on the bottom line, net income, so it’s easy to see at a glance how well the business is performing financially.

Advantages of Multi-Step Income Statements

Offer Greater Detail: Multi-step income statements offer an itemized breakdown of a business’s revenue and expenses, categorized by operating and non-operating revenue for more insight into the financial health of the company.Report Gross Profit: Unlike a single-step income statement, multi-step income statements report on gross profit. Gross profit is an important metric because it shows how efficiently a business uses labor and supplies to generate revenue.

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Report Operating Income: Multi-step income statements report on a company’s operating income, which gives insight into how efficiently a company earns a profit from its primary business activities.

Single-Step Income Statement Example

This example of a single-step income statement prepared by Accounting Coach gives you a better understanding of the data reported on a single-step income statement and how it’s presented in the final report: