Definition:

The multiple-step income statement is the template that use to prepare an income statement by recording the operating income and operating expenses separately from non-operating income and non-operating expenses.

That means before figure out how much profit or loss during the period, we need to find the operating revenues, operating expenses, and non-operating income as well as non-operating expenses.

This template simply separate entity’s operating activities and non-operating activities financial terms.

This template is very useful to users of financial statements because it could tell them how much the reporting entity could generate profit from its operating activities.

As well as how good the chiefs executive is in leading the company since the non-operation sections are not related to their performance.

A multiple-step income statement is also the template that approved to be used by IFRS. Most of the entities prefer to use this template rather than a single-step income statement.

Key element of Multiple Step Income Statement

1) Operating revenues:

Operating revenues are the revenues that an entity generates from its normal business activities. For example, if the entity is operating as construction services, the revenues from the contractions contracts with its customers are considered as the operating revenues.

This is because of this revenue is generating from its main operation activities.

However, the company might generate some income from interest income that it deposits in the banks. This kind of income is not considered as revenues or operating revenues.

In a multiple-step income statement, the operating revenues are recording in the operating section.

2) Non operating income:

Other income, non-operating income, or other income might imply the same kind of income that the entity is generating from its main operation.

As mentioned above, that income might include interest income. Other items that normally including the other income include the income that entity generating from sales of fixed assets or others one-off income-generating activities.

In a multiple-step income statement, the others incomes are recording in the non-operating section.

3) Operating expenses:

Operating expenses and non-operating expenses are recorded separately in the multiple-step income statement. The expenses that normally record in the operating section including salary expenses, cost of sales, advertising expenses, sales expenses, administrative expenses, as well as office supplies expenses.

4) Non operating expenses:

Non-operating expenses are the expenses that non-related to the entity’s daily operation. For example, interest expenses and other expenses that spend by the entity like selling of fixed assets.

Explanation:

As you can see in the example below, in the multiple-step income statement, sales revenues are deducting by the cost of goods sold to get gross profit.

And this gross profit will be deducted by operating expenses. to get operating profit.

Meaning that on this step, we taking into account only items related to operating activities.

For non-operating items, we need to include them in the financial section which will be explained in the next section.

For example, sales revenues, cost of goods sold, and operating expenses.

Other items that are not related to operating activities will be recorded in the next step.

The next step we need to consider is non-operating activities. They are including interest income, interest expenses, gain or loss on exchange different, gain or loss on revaluation,  and other non-operating expenses.

Meaning that this step, we include only non-operating items. One we include all of the non-operating items, we will get net profit or net income.

It is good to know that non-operating activities are activities that are not related to the entity main operation.

The multiple-step income statement is very useful to users of financial statements because this template clearly classified operating items and non-operating differently.

By using this template, users could understand whether the entity could generate the profit from operating activities or not.

This template also let the users know the current gross profit which is one of the most importance information to know for their decision making.

Users may want to know how is the current margin against previous period and industry averages.

Example:

Here is the example of multiple step income statement: