Which accounting record summarizes a business’s profit or loss for a previous year using a single-step approach?

• A. Single-step Income Statement
• B. Statement of Cash Flows
• C. Statement of Retained Earnings
• D. Balance Sheet

Answer: (A)

Verified step by step guidance

1. Understand the purpose of each financial statement: The Single-step Income Statement summarizes a business's revenues and expenses to calculate net income or loss for a specific period, typically a year. It uses a straightforward approach by subtracting total expenses from total revenues.
2. Recognize the format of the Single-step Income Statement: This statement does not categorize expenses into operating and non-operating. Instead, it presents all revenues and expenses in a single section, making it simpler to understand and prepare.
3. Compare the Single-step Income Statement to other financial statements: The Statement of Cash Flows focuses on cash inflows and outflows, the Statement of Retained Earnings tracks changes in retained earnings, and the Balance Sheet provides a snapshot of assets, liabilities, and equity at a specific point in time.
4. Identify the correct answer based on the problem: Since the question asks for the record summarizing profit or loss for a previous year using a single-step approach, the Single-step Income Statement is the correct choice.
5. Review the importance of the Single-step Income Statement: It is particularly useful for small businesses or entities that prefer a simplified method to report financial performance without detailed categorization of expenses.