Single-step income statement definition
/What is a Single-Step Income Statement?
The single-step income statement presents information in a simplified format. It uses a single subtotal for all revenue line items and a single subtotal for all expense line items, with a net profit or loss appearing at the bottom of the report. This format is most commonly used by businesses that have relatively simple operations, with few line items reported. It is most commonly produced by lower-end accounting software packages.
Format of a Single-Step Income Statement
The following is a sample format for a single-step income statement:
| Revenues | $1,000,000 |
| Total revenue | $1,000,000 |
| Expenses | |
| Cost of goods sold | 350,000 |
| Advertising | 30,000 |
| Depreciation | 20,000 |
| Rent | 40,000 |
| Payroll taxes | 28,000 |
| Salaries and wages | 400,000 |
| Supplies | 32,000 |
| Travel and entertainment | 50,000 |
| Total Expenses | $950,000 |
| Net Income | $50,000 |
Advantages of a Single-Step Income Statement
There are several advantages associated with using a single-step income statement. They are as follows:
Ease of preparation. A single-step income statement involves one straightforward calculation—subtracting expenses from revenues. This simplicity makes it easy for small businesses or those without complex financial activities to prepare and understand.
Straightforward presentation. For users who may not be familiar with accounting, a single-step statement is easier to read and interpret. There are fewer complex line items, so readers can quickly assess whether the business was profitable.
Aligned with small business models. Many small businesses and service-oriented companies (such as consulting firms) find this format useful since their financial operations are often less complicated than those of manufacturing or retail companies that benefit from multi-step income statements.
Enhanced privacy. The single-step approach limits detailed breakdowns that competitors or other stakeholders could use to analyze a business’s operating efficiency. This can help businesses maintain a level of privacy regarding their financials.
Disadvantages of a Single-Step Income Statement
The single-step format is not heavily used, because it forces the readers of an income statement to separately summarize subsets of information within the income statement. For example, there is no gross margin calculation, nor any expense breakdowns by department. This makes it more difficult for users to extract useful information from an income statement. This is a particular concern for a larger and more complex organization, which has many departments and expenses.
Advantages of the Multi-Step Income Statement
For a more readable format, try the multi-step format, which is the format of choice for larger and multi-department organizations. Smaller businesses may start reporting their financial results with a single-step income statement and then switch to the multi-step format once their operations become larger and more complex.