First, discuss the purpose of an income statement for a retail company. As we know, the income statement conveys a company's revenues, expenses, and across-the-board earnings or losses for a straightforward term of time, and it is one of the three principal financial statements that small companies scheduled to inform on their financial implementation, along with the balance sheet and the cash flow statement. "For businesses, shipping charges bring both benefits and challenges, and the terms negotiated can have a significant impact on inventory operations" (Franklin et al., 2020, p. 400).
To describe in more detail, an income statement's purpose is to show a corporation's financial performance over time and tell the financial story of a business's activities. Therefore, you can find all revenue and expense accounts within an income statement as a set period. In the retail business, P&L statements supply helpful details about the current condition of a retail business. For example, the retail companies will show whether a business is in the red, indicating they contain more expenses than revenue or if they are obtaining in yields.
To answer the statement format I choose, first, the format I choose depends on the type of company I own and the most significant intention of the income statement I am creating. Both single-step and multi-step income statements inform on the revenues, expenses, and the yield or failure of the company during a short reporting period. Still, a single step needs a little time to report the entity. However, on the other hand, multi-step takes more time to record the entity.
As I want to give my company a merchandise company, I need to know every detail of the entity if I want to earn much profit, and it is possible if I choose the multi-step Income Statement format (Franklin et al., 2020). A multi-step income statement is more detailed than a simple one (Franklin et al., 2020).
Let's discuss the reason Why we chose the multi-step income statement format.
I have already discussed that I want to create a merchandise company, and this type of company is a large company. Therefore, as I choose a large company, I need to know every statement of the event which happened in my company, for example, expenses, revenue, dividend, liabilities, etc. Because of the additional detail, the multi-step income statement is the option for my companies with more complex operations selected. Per Revenue and expense accounts should be listed separately under the suitable category on the statement. The multi-step statement separates the cost of goods sold from operating expenses and deducts the cost of goods sold from net sales to obtain a gross margin; operating expenses are daily operational costs not associated with directly selling products or services (Franklin et al., 2020). "To demonstrate the use of the multi-step income statement format, let's continue to discuss California Business Solutions (CBS). The following is select account data from the adjusted trial balance for the year ended, December 31, 2018. We will use this information to create a multi-step income statement. Note that the statements prepared are using a perpetual inventory system" (Franklin et al., 2020, p. 405)
In conclusion, we already know that the multi-step income statement exists as an income statement that classifies incomes and expenses into operating and non-operating heads. The Operating head covers revenues and expenses that directly relate to the business's primary activities (Team, 2022). The benefit of the multi-step income statement is that the multi-step income statement helps users analyze the business's performance; investors, lenders, and other vital stakeholders monitor the business's gross margin, which is calculated as an allocation of net sales, and the gross margin is then corresponded to the company's past gross margins and other comparable entities' gross margins to determine how efficiently the company performs (Team, 2022). In addition, the multi-step income statement contains the subtotals that guide the net income calculation, providing more detail into how my company will generate net income than a single-step statement. As a result, it allows me, as the company owner, to better understand the company and its financial position.
References:
Franklin, M. Graybeal, P. & Cooper, D. (2020). Principles of accounting, volume 1: Financial accounting. Open Stax Rice University. https://openstax.org/details/books/principles-financial-accounting
Team, C. (2022, March 4). Multi-Step Income Statement - Overview, Components, Pros. https://corporatefinanceinstitute.com/resources/knowledge/accounting/multi-step-income-statement/