Multi-step Income Statement - Video Tutorials & Practice Problems
A multi-step income statement shows important sub-totals on its way to Net Income.
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Multi-step Income Statement
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Alright, let's try this example and create a multi step income statement. Use the following information for Cool. Corp for the year ended december 31st 2018. Alright, so we've got some accounts here, Sales gains cost of goods sold, so we just have to put them in the correct order for our um for our multi step income statement, I noticed the last thing they tell us here is a tax rate of 40% so they didn't tell us what the income tax expense was, we'll figure it out once we get there. Alright, so here we go, let's start with sales, right at the top, we have our sales revenue and our sales revenue was 443,000, Right? So there's 443,000. So we've dealt with that one, but notice we've got sales discounts right here, right? Sales discounts that lowers the value of our sales account. Uh this was a discount that we gave to customers for paying us quickly. So sales discounts would go right here and actually what we would actually write is something like less sales discounts, right? To signify that we're subtracting This value from our original number. So 23,000 is going to be subtracted there and then we would have our net sales is what we would call it. So net sales revenue would be the amount after these discounts. So we would show here uh 420,000, right? 420,000 in our net sales. Cool. So the first thing we do after we get to sales is take out our cogs right we want to calculate gross profit. So cogs is going to be 136,000, it told us up above. So we've dealt with sales discounts now. We've dealt with cogs. So that's 100 and 36,000 right there. Cool. And we calculate gross profit, right? Our cogs was 1 36. Our gross profit is just gonna be the difference of these 2 420,000 minus 136,000 gives us 284,000 In gross profit. Cool. So the next section is our operating expenses. So let's see what our operating expenses are gonna be. We've got payroll we've got rent and general and administrative those all look like operating expenses. So let's start with payroll, payroll is 75,000 and I'm just gonna write payroll expense X. P. For to save time here. And all right, 75,000 here and notice we have two columns here. This left column is like where we're doing sub totals. And the right hand column is like for the full full balances. So there's our payroll expense. Next. So we dealt with this one let's do rent expense for 36,000. 36,000. And we had one more Which was our general and administrative expenses for 58,000. So I'm gonna put G. And A. For general and administrative Expenses and that was I forgot the number 58,000. Short term memory. Getting away from me there. Alright. 58,000. So we're gonna say total operating expenses and we can put that in our totals column. All right, let's see what that is. So pull out my calculator again, 75,000 plus 36,000 plus 58. That gets us 100 and 69,000 in total operating expenses. Ok. 169,000. Total operating expenses. So now we go into our other revenues and gains. Okay? So we could actually before we get there we could have our income from operations line. So what I would do is under here let me make a little more space. So this is gonna be a little tight. But we would have total up expenses. Right? And we would show that total of 169,000. And then we would show income from operations. Okay, that that wasn't actually written in here. But we should show that on our on our multi step income statement. So the 2 84,000 minus the 1 69 this is our income from operations. Right? This this is like our our core business of whatever we do and all the operating expenses the necessary expenses to run this business. So now we're gonna get to the non operating stuff. So non operating stuff, let's start with it says first other revenues and gains we want to show those first. Right? So what did we have? We had a gain on sale of land. We sold some land for more than it was on our books. And we gotta gain so gain on sale of land Would go in here. And that was I think it was 9,000 9000. Alright. And then we had an other expense here. Right? Interest expense of 4000. So this is an other expense that would go down here, interest expense. And that was 4000. Right? So now we can get to our income before income taxes. Now you want to be careful because the gain on sale of land, that's an increase, right? That's more income. And then the expense that's a decrease. So we'll do the 115,000 plus nine, and then minus four. Right? And that gets us to income before income taxes of 120,000 right here. Cool. The last step is finding out our income tax expense. They told us that they have a tax rate of 40% Right? So we take our income before income taxes. And that's what we're gonna pay taxes on. 120,000 times 400.4, we're gonna pay 48,000 in taxes. Okay? And that was the 120,000 times the 40% tax rate that they gave us up above. And we'll get to our final net income 120,000 minus the 48 in taxes, gets us to net income of 72,000. Alright. And that is our bottom line. That's what we're solving for here. Net income of 72,000. Cool. So you can see there's quite a few steps along the way, but it's not too crazy. Alright, let's go ahead and move on to the next video.