Reference no: EM133149946

A single step income statement is simple to calculate and easy to understand. It requires fewer calculations and is less confusing to the person using it to look at the data. In a single step income statement all the data you is put into two categories. Those two categories are revenue and expenses. (1) In this income statement the calculations would be done by taking your total expenses and subtracting that number from your total revenues to give you your net income or net loss. (1) Using this income statement is simple and easy to understand but it also tends to lack other detailed information that an end user may want and need to be able to dive deeper into the numbers to make decisions about the numbers.

A multi-step income statement is more useful because it highlights components of net income. (1) It gives the end user a deeper dive into the numbers to help make better decisions about the numbers. The multi-step income statement gives higher detail by doing numerous steps/calculations in determining net income. This step uses Gross Profit, Income from Operations, and net income. (1) Some drawbacks to using this method are that it is time consuming and requires many steps in calculating. This method can also be very confusing to the end user.

Looking at a multi-step income statement has a few benefits that creditors use in determining the performance of a company. Gross profit is an important tool to look at for creditors because it shows the efficiency of the production process of a company. Income from operations is also an important tool for creditors because it shows how profitable the company's operations are.