Question

For each item below, indicate whether the statement describes a multiple-step income statement or a single-step income statement.

a. Multiple-step income statement b. Single-step income statement

1. Commonly reports detailed computations of net sales and other costs and expenses.

2. Statement limited to two main categories (revenues and expenses).

3. Reports gross profit as a separate line item.

4. Reports net income equal to income from operations adjusted for any nonoperating items.

Short answer

1. Multi-step income statement.

2. Single-step income statement.

3. Multi-step income statement.

4. Multi-step income statement.

Step-by-step solution

Definition of Income Statement

A statement prepared by an accountant that represents thenet benefits generated by a business entity by reporting their expenses and revenue is known as an income statement.

Classification of each statement

Multi-step income statement: Income statement prepared by a business entity, in which all the intermediate calculations are shown andall expenses and incomes are categorized asoperating and non-operating, is known as a multi-step income statement.

Single-step income statement: Income statement prepared by a business entity, in which the complete statement is divided into two categories—revenue and expenses—and no intermediate calculations are shown, is known as a single-step income statement.