What Is a Single-Step Income Statement?
An income statement is a document that summarizes the revenue brought in by a business, minus all costs incurred to generate that revenue. It’s also called a “profit and loss” statement or statement of operations.
Single-step income statements are useful when a business is just beginning, as they do not require any knowledge of complex accounting practices. They’re also helpful after a business has been operating for some time, as they make it easy to compare different periods (such as comparing fiscal year to fiscal year results) by showing the basic calculations.
The single-step income statement is not commonly used, but it can be helpful when your business is just getting started and you’re not sure about how to complete an income statement.
Businesses often use multiple-step income statements; these include more detailed information about their costs and revenue.
Single-Step vs. Multiple Step Income Statement
The single-step statement doesn’t give any details, especially about costs. The multiple-step model separates revenue and expenses into different categories so you can see exactly where your money goes.
Multiple-step income statements require a better understanding of accounting principles than the single-step process does, which might not be an option for a business just getting started.
How to Use A Single-Step Income Statement
A single-step income statement is fairly straightforward and easy to complete, but there are some calculations that need to be finished before you can get the final number of your profit or loss. What comes in from customers has to match what goes out in expenses. What’s left over is how much profit you made.
The single-step income statement has two main categories, “revenue” and “expenses”. Revenue is how much money comes in through sales, while expenses are all your costs (paying team members, office supplies, etc.)
Revenue in the Single-Step Statement
There are a few ways to calculate revenue from your single-step statement. You can use “gross revenue” or “net sales”.
Gross revenue just includes the total amount of money you made from customers before any expenses were taken out. Net sale is a bit more complicated: it’s gross revenue minus returns and allowances. What comes into your company that doesn’t go back to your customer is what counts as “net sales.”
Expenses in the Single-Step Statement
There are two ways to calculate expenses on a single-step income statement, but you’ll most likely use “cost of goods sold” (or COGS for short).
COGS includes anything that goes to making or providing your product. What’s left over after COGS is your total expenses. You can also calculate total regular expenses; this includes stuff like supplies and office rent that aren’t part of regular production costs.
What Are the Steps in Making a Singe-Step Income Statement
There are only two main steps to complete a single-step income statement:
1) Calculating your gross revenue (how much you made)
2) Calculating the total of all costs (such as rent, supplies, etc.) What’s left over is how much profit you made. This number can be positive or negative depending on whether you brought in more money than you spent.
The Advantages of Using a Single-Step Income Statement
If you’re just starting out and don’t understand accounting, a single-step income statement can be very helpful. It’s easy to calculate and doesn’t require many steps, which is good for businesses that need accurate numbers without all the details.
A single-step income statement gives you a basic understanding of how much money you made in a year. What you do with this information is up to you, but it’s good to have some numbers at the start of your business.
The Disadvantages of Using a Single-Step Income Statement
A single-step income statement might not be accurate because there are no calculations related to costs. If your business model has a lot of different expenses, you might not get an accurate number.
It’s also hard to break down your revenue into smaller amounts for specific products or services; the single-step statement only includes total revenue. What you can do is list each product individually on your balance sheet if you need more detailed numbers about what makes up your total revenue.
Why You Should Use a Single-Step Income Statement in Your Business
The single-step income statement is best for businesses that don’t have a lot of expenses and just want to keep track of how much revenue they’re bringing in. It’s also perfect for businesses that are just starting out, as it provides basic numbers without spending too much time or effort on calculations.
Types of Entities That Can Use the Single-Step Method
The single-step income statement is for any business that wants to keep track of the money coming in and going out. This includes sole proprietorships, corporations, and even nonprofits. What works best for each type of entity is different, so be sure to consult a professional if you’re not sure how to work with your specific organization’s numbers.
Different Scenarios When Using a One-Step Income Statement
A single-step income statement is perfect for businesses that don’t have complex financials, such as retailers. What you need to do depends on your type of business, so consult with an accountant or other professional if you have questions about how to use the numbers in your one-step statement.
The Bottom Line
A single-step income statement is the simplest way to track revenue and expenses. What comes in is revenue, what goes out is expenses, and whatever’s left over is profit. This method only lists total revenues and total costs; you’ll need to break down details if you want exact numbers for each product or service.
You can use a single-step income statement for sole proprietorships, corporations, and other types of entities. What works best for each type of entity is different, so be sure to consult with a professional if you’re not sure what to do with the numbers on your income statement.
About the Author
True Tamplin, BSc, CEPF®
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.