Question

What types of revenues and expenses do you think Sprouts would include on its income statement that would be typical for other industries as well?

What are operating expenses?

Explain the difference between a single-step income statement and a multiple-step income statement. Which is normally favored?

Answer 1

1. The types of revenues and expenses that include in the income statement they are :-

Revenues :-

A. Sales income

B. Other incomes like interest on investment

Expenses :-

A. All operating cost

B. Some exceptional expenses which are related to the particular specific industry .

Example :- here in the given case sprouts company will be taken. The sprouts company is operating in the farming industry. The farming expenses and maintaining the farm all these expenses are where is specific and particular to those organisations which are operating in farming industry so these expenses include the income statement of sprouts.

2. Operating expenses :-

An operating expense is an expense a business incurs through its normal business operations. Often abbreviated as OPEX, operating expenses include rent, equipment, inventory costs, marketing, payroll, insurance, step costs, and funds allocated for research and development. One of the typical responsibilities that management must contend with is determining how to reduce operating expenses without significantly affecting a firm's ability to compete with its competitors.

Examples of operating expenses :-

Depreciation of fixed assets assigned to non-production areas

Insurance costs

Legal fees

Office supplies

Property taxes

Rent costs for non-production facilities

Repair costs for non-production facilities

Utility costs

3.differences between the single step income statement and multi step income statement :-

Multiple-Step Income Statements
Most publicly-traded companies use multiple-step income statements, which categorize expenses as either direct costs (also known as non-operational costs), or indirect costs (also known as operational costs). Direct costs refer to expenses for a specific item, such as a product, service or project. Contrarily, indirect costs are generalized expenses that go towards a company’s broader infrastructure, and therefore cannot be assigned to the cost of a specific object. Examples of indirect costs include salaries, marketing efforts, research and development, accounting expenses, legal fees, utilities, phone service and rent.

The siloed breakdowns in multiple-step income statements allow for deeper analysis of margins and provide more accurate representations of the costs of goods sold. Such specificity gives stakeholders a sharper view of how a company runs its business, by detailing how the gross, operating, and net margins compare.

On the downside, multiple-step income statements can be labor intensive for accounting teams to produce, because of the granularity involved in managing and recording copious data. Case in point: each type of revenue and expense must be diligently categorized and each transaction must be fastidiously recorded. Any mistake could cause investors to make errant assumptions about the company, which could negatively impact business.

Single-Step Income Statements
A single-step income statement offers a simplified snapshot of a company’s revenue and expenses. This straightforward document merely conveys a company’s revenue, expenses, and bottom-line net income. All revenues and gains are totaled at the top of the statement, while all expenses and losses are totaled at the bottom. This simplified approach makes record-keeping easier for both the accountants who prepare the statements, and the investors who read them. Shareholders need only focus on the net income figure, to gauge a company's overall vitality.

On the other hand, some investors may find single-step income statements to be too thin on information. 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, causing businesses to miss out on opportunities to acquire operating capital.

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