Question

what do I need to know while doing a multi-step income statement?

Answer 1

Multi-step income statement is the income statement which shows different types of income at multiple step in one income statement. Firstly it shows the Gross profit by subtracting cost of goods sold from Sales. Then it give us Operating Profit by subtracting operating expenses such as salaries, rent, depreciation, bad debts etc. from Gross profit. and then it takes non-operating income and expenses such as interest revenue, interest expense, gain on sale of shares etc. the net non-operating income/expense is added/deducted from Operating profit to get profit before tax. Income tax expenses are then subtracted to get Net Profit.

You need to know Sales and cost of goods sold to get Gross profit. Then you should know the operating and non-operating expenses. You have to segregate them. Operating expenses should be deducted from Gross profit to get Operating income. Then non-operating expenses/revenue if any should be deducted/added to get profit before tax. Then tax rate is required to calculate income tax expenses and after deducting income tax expenses, you will get the amount of Net profit