Three types of income statements exist: single-step, multiple-step and consolidated. The type of income statement used to present financial information determines the amount of detail included in the document. An income statement of any type is also known as a profit and loss statement (P&L), a statement of earnings or a statement of operations. The author of any type of income statement must adhere to generally accepted accounting principles (GAAP) when preparing the document.
An income statement presents timely financial information regarding a company’s performance. In its heading, an income statement includes the name of the business, the title of the statement and the precise time period reflected in the report. A P&L also reveals the revenue earned by a business, the expenses incurred and the amount of net profit or loss claimed.
If prepared for a publicly traded company, a P&L also shows earnings per share in accordance with GAAP dictates.
A single-step income statement does not distinguish between different kinds of revenues or expenses. Instead, a single-step income statement groups all revenues and expenses into their respective categories. Net income or loss equals the total of all expenses subtracted from the total of all revenues. Net income appears at the bottom of the document.
A single-step P&L only identifies revenues and expenses related to accounting changes, unusual events or suspended operations singularly above net income.
A multiple-step income statement separates operating revenue and expenses from other types of revenues and expenses. A multiple-step P&L identifies gross profit by subtracting the cost of goods sold from a company’s total sales figure. This P&L delineates individual expenses related to the production of a business’ goods or services immediately below gross profit. Subtracting total operating expenses from gross profit reveals a subtotal called net income before taxes or operating income.
Non-operating revenues and expenses appear below income or loss from operations. A multiple-step income statement identifies each of these items separately with non-operating revenues recorded above the other expenses. This section includes lines for taxes owed and interest earned and owed. The total of this section equals income or loss from non-operations.
Adding net income or loss from non-operations to income or loss from operations reveals a company’s net income or loss.
With its various subtotals, a multiple-step income statement reveals detailed information that a single-step P&L does not present.
Consolidated Income Statement
When a company owns more than 50 percent of another business’ voting shares, an accountant will prepare a consolidated income statement to demonstrate the combined profit or loss of the entities. A consolidated P&L combines all revenues earned and expenses incurred by both a parent company and its subsidiary. A consolidated income statement does not record monies exchanged between the two companies for things such as rent and sales to one another.