Question

In: Accounting

Select the appropriate elements of the SFP from the given accounts. SINGLE-STEP APPROACH OR MULTI-STEP APPROACH...

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

Solutions

Expert Solution

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:

  • Sales revenue
  • Investment income
  • Revenue from interest

The expenses category includes:

  • Cost of goods sold
  • Depreciation
  • Rent
  • Utilities
  • Employee salaries

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.


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