MODULE 1.

2 FABM2
THE MULTIPLE-STEP INCOME STATEMENT

Lesson Objectives

- Know the components of the multiple-step income statement

- Prepare the multiple-step income statement

COMPONENTS OF THE MULTIPLE-STEP INCOME STATEMENT

Ren Ren Merchandising

Income Statement
For year ended December 31, 2017

Note
Net sales 1 ₱xxx
Cost of Sales 2 xxx
Gross Profit ₱xxx
Other Income 3 xxx
Total Income ₱xxx
Operating Expense
Distribution Expense 4 ₱xxx
Administrative Expense 5 xxx
Other Expense 6 xxx
Finance Cost xxx xxx
Net Income ₱xxx

Net Sales
The first line after the heading of the income statement is the net sales. To show the details of its
computation, it is supported by a note to financial statement. Net Sales is computed as follows:

Gross Sales ₱xxx

Less: Sales Returns & Allowances ₱xxx
Sales discount xxx xxx
Net Sales ₱xxx
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Cost of Sales
The cost of sales or cost of good sold represents the cost of merchandise inventory sold by the
business to its customers. This comprises the company’s biggest expense and is deducted from net sales
to arrive at the gross profit. Computation of cost of sales is as follows:

Other Income

Other income is income derived from sources other than the company’s main line of
business. Examples are interest income, dividends income, commissions income, rent income, and
gain on sales of assets. To show the details of this income account, it is supported by a note to
financial statements.

Distribution Expenses/ Selling Expense

Selling expenses are those incurred in directly selling the merchandise. This includes
salaries of sales personnel, expenses incurred in promoting or advertising the product,
Commissions on The Sales, store supplies used, utilities used in the store, depreciation expense of
assets used in the Dec store and the cost of transporting the merchandise to the customer's place of
business under the account title freight-out or delivery expense.

General/ Administrative Expenses

General or administrative expenses are expenses necessary in the management of the

office. This includes the salaries of office personnel, office supplies used, utilities used in the office.
Depreciation of office assets and the provision for bad debts or uncollectible accounts. Note: If the
business has a small office, does not maintain a store, and sales are also made in the office,
operating expenses need not be categorized under selling and administrative expenses.
Other Expenses

Other Expenses are expenses not connected to the operating activities of the business. An
example of this is loss on sale of assets and discount lost.
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Finance Cost
Finance Cost are the interest expense paid for the use of borrowed funds.
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TEST YOUR UNDERSTANDING

1. Discuss the Components of the multiple-set income statement

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Test your understanding

1. What is the difference between a natural form and a functional form income statement?
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2. Discuss the Different parts of the multiple-step income statement.
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