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A single-step income statement gives a unified report of a business’s profit at the moment, exploring a single equation to calculate net income and use its information in the following processes (Cottrell et al., 2018). At the same time, a multi-step income statement distinguishes between operating revenues and expenses and non-operating ones (Cottrell et al., 2018). It also presupposes a three-step process to calculate and outline net income (Cottrell et al., 2018). In such a way, this approach helps business owners or managers to become more informed about the current financial position of a unit and plan further actions using relevant and detailed information. However, a multi-step income statement demands more time, resources, and competencies from a specialist as various types of data should be considered (Cottrell et al., 2018). A single-step income statement is a simpler approach that saves time and costs; moreover, it can be conducted in different conditions. However, the data acquired by using this method can be limited and not enough for making conclusions.
A multi-step income statement can also be useful to creditors because of several factors. First, it allows investors to see how effectively a company performs its central duties, which can be used as the main factor when deciding whether to invest in a company or not (Cottrell et al., 2018). Second, the multi-step income statement helps specialists to make a gross profit calculation (Cottrell et al., 2018). This information is vital for determining the nature of a company, its future evolution, and opportunities for the future rise (Cottrell et al., 2018). Under these conditions, employing the given model, creditors can feel safer as they acquire relevant data about the work of a potential partner and can use it to avoid serious risks. Under these conditions, the use of different types of income statements depends on the situation.
Reference
Cottrell, D., Christensen, T., & Bidd, C. (2018). Advanced financial accounting (12th ed.). McGraw-Hill Education.
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