The Income Statement is a financial statement that provides stakeholders with a snapshot in time

of the business's financial health. Franklin Graybeal and Cooper (Franklin Graybeal and Cooper,

2020). This is also the function of a retail business. To derive the income statement, the Simple

Income Statement Format presents information in a brief format that shows revenue less

expenses. To calculate net income, all revenue accounts are combined into one category, as are

all expense accounts. The simple income statement format differs significantly from the multi-

step format in that it does not separate cost of sales from operating expenses. Franklin Graybeal

and Cooper (Franklin Graybeal and Cooper, 2020).

A multi-step income statement is a more detailed income statement that is used by businesses to

demonstrate complex operations. On the statement, each revenue and expense account is listed

separately under the appropriate category. Franklin Graybeal and Cooper (Franklin Graybeal and

Cooper, 2020) It typically lists operating expenses, which include selling and administrative and

general expenses. Sales salaries and marketing are examples of selling expenses, while insurance

and supplies are examples of administrative and general expenses.

A multi-step income statement presents information in a step-by-step format, displaying net sales

after deducting sales discounts, returns, and allowances. The gross margin is calculated by

subtracting the cost of goods sold from net sales. When operating expenses are subtracted from

the gross margin, the income for operations remains. Other revenues and expenses are deducted

from the income for operations to produce a net income.

Why did I choose this format for your statement?

For the retail industry, a combination of multi-step and simple income statement formats is

appropriate. Investors and lenders will have a summary of financial information to keep them
from being discouraged by the simple income statement. To aid in decision-making,

management will be provided with detailed information in the form of a multi-step income

statement. On the multi-step income statement, for example, the gross profit margin ratio shows

the availability of revenue to reinvest in the business, pay debt, and distribute dividends to

shareholders. The gross profit margin is calculated as follows: net sales minus cost of goods sold

divided by net sales. The greater the margin, the more resources are available for growth

Benefits and drawbacks of statement selection for each stakeholder group

For internal decision-makers, a multi-step statement is appropriate for growth strategies, whereas

a single-step approach is not overwhelming for external decision-makers. By combining both

statements, you can ensure that all types of stakeholders are well informed in their decision-

making. Meeting the needs of each stakeholder is thus not a challenge.

Reference

Franklin, M. Graybeal, P. & Cooper, D. (2020). Principles of accounting, volume 1: Financial

accounting. Open Stax Rice University. https://openstax.org/details/books/principles-financial-

accounting.