The income statement is an integral part of all financial statements presentations. There are two ways of creating the income statement: the single-step and the multiple-step methods. What are the merits of each and which do you prefer as 1) the creator of the income statement and 2) the user of the income statement? Be sure to indicate and explain why you chose each answer. Should the creator\'s and user\'s needs be the same or different? Solution An income statement is a financial summary of a company\'s financial operations over a set period of time. However, not all companies have the same reporting requirements for their respective income statements. Smaller companies that have simple structures can get away with single-step income statements. Other companies, such as corporations, have to produce multiple- step income statements that are more complicated and detailed. There are advantages and disadvantages to each type of income statement. Single-step Income Statement Single-step income statements offer a very straightforward accounting of a company\'s business activity. All revenues and gains are added together at the top of the statement, while all of the losses and expenses are totaled below them. An example of the equation is represented as: (Revenues + Gains) - (Expenses + Losses) = Net Income While easy for company accountants to understand, single-step income statements are clearly very thin on information, and investors are left without any real concept of profitability. Multiple-step Income Statement Unlike single-step income statements, a multiple-step income statement offers detailed information about the gross profit and operating profit of a company. Operating sections of the statement generally involve revenues and expenses, while nonoperating sections detail the gains and losses of indirect activity. The company\'s specific sources of revenue and expense are itemized and presented as different line items, making it easier for investors to digest performance and evaluate financial health. The obvious trade-off to presenting detailed accounting is that it is more complicated and time-consuming to put together. Accountants record every transaction separately and maintain a vigilant segregation of revenue or expense types..

1. The income statement is an integral part of all financial statements presentations. There are two
ways of creating the income statement: the single-step and the multiple-step methods. What are
the merits of each and which do you prefer as 1) the creator of the income statement and 2) the
user of the income statement? Be sure to indicate and explain why you chose each answer.
Should the creator's and user's needs be the same or different?
Solution
An income statement is a financial summary of a company's financial operations over a set
period of time. However, not all companies have the same reporting requirements for their
respective income statements. Smaller companies that have simple structures can get away with
single-step income statements. Other companies, such as corporations, have to produce multiple-
step income statements that are more complicated and detailed. There are advantages and
disadvantages to each type of income statement.
Single-step Income Statement
Single-step income statements offer a very straightforward accounting of a company's business
activity. All revenues and gains are added together at the top of the statement, while all of the
losses and expenses are totaled below them. An example of the equation is represented as:
(Revenues + Gains) - (Expenses + Losses) = Net Income
While easy for company accountants to understand, single-step income statements are clearly
very thin on information, and investors are left without any real concept of profitability.
Multiple-step Income Statement
Unlike single-step income statements, a multiple-step income statement offers detailed
information about the gross profit and operating profit of a company. Operating sections of the
statement generally involve revenues and expenses, while nonoperating sections detail the gains
and losses of indirect activity. The company's specific sources of revenue and expense are
itemized and presented as different line items, making it easier for investors to digest
performance and evaluate financial health. The obvious trade-off to presenting detailed
accounting is that it is more complicated and time-consuming to put together. Accountants
record every transaction separately and maintain a vigilant segregation of revenue or expense
types.