In: Accounting
Select the appropriate elements of the SFP from the given accounts.
SINGLE-STEP APPROACH OR MULTI-STEP APPROACH
1. Net Sales
2. Net Purchases
3. Depreciation and Amortization
4. General and Administrative Expense
5. Rent Expense
6. Cost of Sales
7. Bad Debts Expense
8. Selling Expense
9. Advertising Expense
10. Utilities Expense
11. Salaries Expense
12. Interest Income
13. Merchandise Inventory
14. Gain from the Sale of PPE
15. Service Revenue
Single Step Approach
Net Income = (Revenues + Gains) – (Expenses + Losses)
A single-step income statement has two main sections: one reporting revenue and the other reporting expenses.
The revenue category includes:
The expenses category includes:
Multi Step Approach
The multi-step income statement uses three different accounting formulas to arrive at the net income:
1. GROSS PROFIT = NET SALES – COST OF GOODS SOLD
Cost of goods sold is subtracted from net sales. This gives the gross profit.
2. OPERATING INCOME = GROSS PROFIT – OPERATING EXPENSES
Operating expenses are subtracted from gross profit. This gives you the operating income.
3. NET INCOME = OPERATING INCOME + NON-OPERATING ITEMS
Operating income is added to the net non-operating revenues, gains, expenses and losses. This final figure gives the net income or net loss of the business for the reporting period.