Enter each expense account to the report as a line item and add them all up to calculate the subtotal of your Expenses section. Mastering the single-step income statement is a practical and powerful way for small business owners to take control of their financial health. Throughout this  series, we explored the foundations, creation, and strategic use of this essential financial document.

  • Therefore net income is $184,400, which will give a general idea that the company is making a surplus of money.
  • For example, if the entity is used as construction services, the revenues from the contractions contracts with its customers are considered the operating revenues.
  • While the single-step format is not cluttered with multiple subtotals, it requires the reader to compute the gross profit and operating income from the amounts listed.
  • For individuals juggling multiple projects or clients, this format provides a clear snapshot of overall profitability without the need for extensive accounting knowledge.

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Without a clear picture of how much money is coming in versus going out, even the most passionate entrepreneur can struggle to sustain and grow a company. Among the core financial tools every business should utilize, the income statement plays a central role. While there are different ways to structure an income statement, the single-step income statement is particularly suited to small enterprises. It offers a simplified yet accurate reflection of a business’s profitability over a defined period. This is great for simplicity’s sake, but it doesn’t give the external users of the financial statements much information about the company operations.

A single-step income statement focuses on reporting the net income of the business using a single calculation. A multi-step income statement is more detailed and calculates the gross profit and operating income of the business using multiple calculations and an itemized breakdown. We walked through the process of building a single-step income statement from the ground up.

Adapting the Format to Your Business

These entities often operate with limited resources and require straightforward financial reporting to present to boards, donors, and stakeholders. Single-step income statements find their niche in various industries, particularly where financial simplicity and quick assessments are paramount. Small businesses and startups often gravitate towards this format due to its ease of use. For these enterprises, the ability to swiftly gauge profitability without delving into complex financial details is invaluable. Retail businesses, for instance, benefit from the single-step approach as it allows them to focus on the bottom line, ensuring that revenues from sales are sufficient to cover all operational costs. Revenues represent the total income generated from a company’s core operations and other financial activities.

Time Efficiency

The absence of gross margin and operating margin data can make it difficult to determine the source of most expenses and can make it harder to project whether a company will sustain profitability. Without this data, investors may be less likely to invest in a company, and this can cause businesses to miss out on opportunities to acquire operating capital. We focused on how to interpret and apply insights from the income statement to enhance business decision-making. Reviewing trends in income and expenses, identifying opportunities to improve profit margins, and forecasting future performance are all made possible by this report. Moreover, the income statement serves as a vital tool for communicating with stakeholders, guiding strategic decisions, setting financial goals, and preparing for tax season with confidence.

Many private companies elect to follow GAAP, even though they aren’t legally obligated to do so. GAAP gives companies the option of issuing either single-step or multiple-step income statements depending on how they’re structured. The income statement also allows you to calculate profit margins, which are key indicators of how efficiently your business is operating. Although the single-step format doesn’t calculate gross or operating profit, you can still derive these figures manually using your revenue and expense data.

Understanding this type of income statement helps stakeholders make informed decisions without being overwhelmed by complex details. Let’s explore its structure and components to see how it captures essential financial data effectively. This format is used by small businesses, sole proprietorships, and partnerships with uncomplicated operations.

In the single-step income statement, all revenue streams are consolidated into one line item. For example, if a company earns $100,000 from sales and $5,000 from interest, the total revenue reported would be $105,000. A single-step income statement is one of the two common formats for small business income statements, which are also called profit and loss statements. The single-step income statement is the simpler of the two formats, because it uses just one equation to calculate a business’s net income. An income statement is one of the major financial statements that companies prepare to demonstrate the financial position of the business.

Types of Company that Uses the Single-Step Format

And it could lead users to misunderstand that entity performance becomes better in that period. The excellent point about this format is that users are straightforward in understanding the entity’s income and expenses for the period being shown. Those expenses include the cost of goods sold, operating expenses, and loss on revaluation.

Enter each of the revenue line items your business has to report and then add them up to find the revenue subtotal. Enter that figure into the Total Revenues line at the bottom of the Revenues section. Every business is different, and your income statement should reflect your specific operations. If you have additional revenue sources or unusual expenses, you can add extra line items accordingly. The format is flexible and scalable, which makes it especially useful for businesses that expect to grow or evolve.

The gross profit figure shows how much revenue exceeds the direct costs of the products sold. 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. One practical benefit of maintaining regular income statements is making tax preparation much easier.

Track your progress using monthly or quarterly income statements, and adjust your strategies as needed. Goal-setting based on actual performance data leads to more focused, achievable outcomes. Whether you are preparing a monthly, quarterly, or annual report, this guide will provide the tools and framework you need to generate a reliable and accurate single-step income statement. For these types of businesses, the ability to quickly assess profitability is more valuable than a complex breakdown of financial categories. At the end of this section, the total revenues are added together to produce a figure labeled total revenues or total income.

This straightforward document conveys a company’s revenue, expenses, and bottom-line net income. All revenues and gains are totaled at the top of the statement; all expenses and losses are totaled at the bottom of the statement. This simplified approach makes record-keeping easier for both the accountants who prepare the statements and the investors who read them. Shareholders only need to focus on the net income figure to gauge a company’s overall vitality. This layered approach allows stakeholders to analyze different aspects of the business separately, making it easier to identify areas of strength and weakness.

The single-step income statement offers a straightforward accounting of the financial activity of your business. Instead, individual expense accounts are combined into broad categories like selling expenses, general and administrative expenses, and cost of goods sold. This encompasses a wide range of costs, from the cost of goods sold to administrative expenses, salaries, rent, and utilities. By grouping all expenses together, the single-step format avoids the need for detailed categorization, which can sometimes complicate the financial analysis. This approach ensures that all outflows are accounted for, providing a complete view of the company’s expenditures.

Typically, public companies are required to issue a multi-step statement to the public. Private companies are often required by banks and other creditors to either issue a multi-step statement or develop a detailed schedule listing specific expenses in order to get financing. This includes primary income from sales of goods or services, as well as any secondary income such as interest earned or investment returns. By consolidating these figures, the single-step income statement provides a comprehensive view of the total inflows, offering a clear picture of the company’s ability to generate income. A single-step income statement offers a simple accounting method for the financial activity of a business, making it easy to prepare and understand.

  • Losses are decreases in equity from peripheral or incidental transactions, excluding those resulting from expenses or distributions to owners.
  • Be thorough and ensure that all expenses are categorized and documented correctly.
  • A single-step income statement is one of the two common formats for small business income statements, which are also called profit and loss statements.
  • For instance, if your revenue has increased by 10 percent each quarter and expenses by 5 percent, you can use those rates to project your next quarter’s performance.
  • By looking at trends in income and expenses over time, you can make educated predictions about upcoming periods and plan accordingly.

This information ensures that anyone reading the document understands exactly what it represents and single step income statement the time frame it covers. Shaun Conrad is a Certified Public Accountant and CPA exam expert with a passion for teaching. After almost a decade of experience in public accounting, he created MyAccountingCourse.com to help people learn accounting & finance, pass the CPA exam, and start their career.

This is essential for comparing performance over time and ensuring that revenues and expenses are matched appropriately. Non-operating expenses are the expenses that are non-related to the entity’s daily operation. For example, interest expenses and other expenses that spend by the entity like selling of fixed assets. These expenses are recorded in the expenses section with other operating expenses of a single-step income statement. However, the company might generate some interest income that it deposits in the banks.

They are most often used by small businesses that have relatively simple operations and few line items to report. We explored the structure and value of the single-step income statement, particularly for small businesses with straightforward accounting needs. With its simple format and easy interpretation, it offers a practical way to monitor profitability and make informed decisions. Now, we will walk through the process of creating one, from defining your reporting period to calculating net income.

Add Up Revenues

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. It breaks down expenses and revenues that are directly related to the business’s operations versus those that aren’t. When it comes to comparing a multi-step income statement vs a single-step statement, it is important to consider the type of business you operate. All publicly traded companies in the U.S. must adhere to generally accepted accounting principles (GAAP), which are accounting standards issued by the Financial Accounting Standards Board (FASB).