Single Step Income Statement Definition
Single Step Income Statement is a method of expressing profit and loss statement that lists all expenses including cost of goods sold in one column rather than breaking them into subcategories like operating and non-operating expenses under this method you just line up each expense and calculate the total expenditure.
Format of Single Step Income Statement
Below is the general format to prepare the Single-Step Income statement.
- Revenues: Revenues comprises of all the income or amount of money received by the business throughout the period under consideration which is usually from sale of products and services to customers however under single-step income statement it comprises of every nature of money or income received i.e. even from those activities that are not primarily business activities such as sale of scarp, interest received on advance payment, etc..
- Expenses: Expenses or expenditure denotes an outflow of resources or money form the organization to acquire certain goods and services which were essential to perform the necessary function of providing goods or services to its customers for example payment of transportation cost, payment of electricity bills, etc.
- Net Income: Net income is the result of comparing both the figures of total revenue from total expenses and the resulting figure shall be net income. It shows the performance of the organization throughout the period under consideration and can either be positive, negative or null i.e. total revenue is equal to total expenses.
Example of Single-step Income Statement
Given are the figures from the accounts of G Company which is manufacturing and selling the different products in the market. Using the given information prepare a single-step income statement.
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For the financial year 2019, total sales of the company were (net of $7,000 sales discounts and $29,600 sales returns and allowances) $502,700 and interest revenue was $12,500 whereas total Cost of goods sold was $225,000. During the same period salaries expense was $47,000, Depreciation expense—building was $37,000, Advertising expense $14,300, Office supplies expense $3,800 also Gain on disposal of store equipment $3,000 and Interest expense was $1,000, Rent paid throughout the year was $1,800, expenses paid for travel and entertainment was $3,100 and other sundry or general expenses were $800 .
Solution:
Therefore net income is $184,400 which will give a general idea that the company is making a surplus of money but it will not enable to analyze further than that i.e. gross margins or future prospects cannot be determined just after the perusal of this statement and would require much effort if one wants to know that aspect of the company.
Advantages
The various advantages related to the single-step income statement are as follows:
- It offers a simplified snapshot of an entity’s revenue and expenses i.e. its simple format enables its reader a basic understanding of its affairs and the reader does not have to be a financial expert to squeeze some meaning out of it.
- Here most of the basic information is covered which can help in formulating a general view about the entity without performing deep analysis.
- The workload of accountants is reduced as this simplified approach makes record-keeping easier and analyzing the figures also becomes easy.
Disadvantages
The various disadvantages related to this income statement are as follows:
- The single-step income statement gives only a basic view about the entity for the period under consideration which may not be useful enough for a person like an investor to make an appropriate decision.
- It lacks information about gross margin and operating margin data making it difficult to identify the source of most expenses which will make it further difficult to make any future projections.
- It does not differentiate between primary activities i.e. its core activities and noncore activities, it treats them the same way which may lead to misunderstanding.
Important Points
- The single-step format is not the most commonly used as it lacks many features of information which are essential to reach a conclusion, for example, it lacks subsets of information within the statement such as gross margin or expenses breakdowns and their specific nature.
- In the single-step income statement, individual expense accounts are combined into broad categories like selling expenses, general and administrative expenses, and cost of goods sold.
Conclusion
The single-step income statement is best suitable for organizations and individuals who are not very humongous in size and the information is required to be presented in a simple way. However, managers use this method of reporting for internal use in single departments and company divisions as a whole in order to analyze a company’s performance and set the budget for future periods. Also, some companies (even some huge ones) present it as part of their annual accounts along with other detailed statements so the person who wants the data to be presented in this form can also have it.
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