Question

Describe the three-line items of the multistep income statement.

Explain why it would be important for a company to break out its income in this manner.

Answer 1

1) operating head gross profit

gross profit is the first section of multi step income statement ,and obtaiend by dedcuting cost of good sold ftrom the total sales . it shows howe profitable comany is manufacturing or selling its prodeucts

gross profit = net sasles - cost of goods sold

2) operaing head - seling and amdin exp

seling and amdin exp from operating activies are capiuired in second section. sellign exp are exp incjured while selling goods to consumers and may incldued marketing exp. saalry of markign personnel

administrative exp are exp that are indirectly relate to sale of goods and include the salary of of office personlal , rental exp.total operating exp are obatiend by adding selling and adminsitrative exp.

operating income = gross profit -opearating erxp

3) non operating head

thies secito non operaign head ,which comprises of all busines inocme and exp that are not relaed to prinicapl activiites of businees.ex-non operating exp is a lawsuit claim paid by the company as compensatio to aggrieved party after losing in a court case .

net income =opeating income +non operaign itmes

advantatges of multi income stattement

helps in analysing performace of the busines,, investror and lenders and other kye statke holders monitroign the gross maring of business whcih is calculated as % of net sales. the gross maring is then compared to past year gorss margin and other comparable entires gross margin to determine how efficently the company is perfroming

it categores operatin and non operating income and exp .it helps users to evalute the financail perormance of the organisation .. the users will know the proft earned from the primary acitivies of buying and selling goods and how it differs from non operatig acitbiies

it shows total revenue attriutblabe to primary acitvies of the business excluding revenue from non merchandise related sales

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