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Based on the contribution format income statement, which of the following best describes the main difference between a single-step income statement and a contribution format income statement?
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4. Merchandising Operations
Single-step Income Statement
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Which of the following best describes the format of a single-step income statement for a business for the month of December?
A
Only cash revenues and cash expenses are included, ignoring any accruals or deferrals.
B
Revenues are categorized by type, and expenses are matched to specific revenues to calculate gross margin.
C
All revenues are listed together, all expenses are listed together, and net income is calculated as total revenues minus total expenses.
D
Operating revenues and operating expenses are separated from non-operating items, and gross profit is shown before deducting operating expenses.
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Understand the concept of a single-step income statement: A single-step income statement is a simplified format where all revenues are grouped together, all expenses are grouped together, and net income is calculated as the difference between total revenues and total expenses.
Compare the descriptions provided in the problem: Analyze each option to determine which one aligns with the single-step income statement format. Pay attention to whether revenues and expenses are grouped together or categorized separately.
Eliminate incorrect options: For example, the option stating 'Only cash revenues and cash expenses are included' is incorrect because a single-step income statement includes all revenues and expenses, not just cash-based items.
Focus on the correct description: The correct format for a single-step income statement is 'All revenues are listed together, all expenses are listed together, and net income is calculated as total revenues minus total expenses.' This matches the definition of a single-step income statement.
Conclude the analysis: Ensure that the chosen description does not include elements like categorizing revenues by type, matching expenses to specific revenues, or separating operating and non-operating items, as these are characteristics of other types of income statements, such as multi-step income statements.
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