Merchandising Operations and the Accounting Cycle - Pearson

Gulf Canada Resources
www.gulf.ca
EXHIBIT 5-9
Single-Step Income
Statement
244 Part One The Basic Structure of Accounting
liabilities and shareholders’ equity at right). There are also two basic formats for
the income statement: multi-step and single-step. A recent survey indicated the multistep
format was used by more than 90 percent of the companies surveyed; the remainder
used the single-step format. 2
Multi-Step Income Statement
The multi-step format shows subtotals to highlight significant relationships. In addition
to net income, it also presents gross margin and operating income, or income from
operations. This format communicates a merchandiser’s results of operations especially
well, because gross margin and income from operations are two key measures of operating
performance. Schneider Corporation (maker of Schneider’s meat products)
uses the multi-step format. The income statements presented thus far in this chapter
have been multi-step income statements. Austin Sound Centre Inc.’s multi-step income
statement for the year ended December 31, 2004, appears in Exhibit 5-7.
Single-Step Income Statement
The single-step format groups all revenues together, and then lists and deducts all expenses
together without drawing any subtotals. Gulf Canada Resources uses this
format. The single-step format has the advantage of listing all revenues together and
all expenses together, as shown in Exhibit 5-9. Thus it clearly distinguishes revenues
from expenses. The income statements in Chapters 1 through 4 were single-step. This
format works well for service entities because they have no gross margin to report or
for companies that have several types of revenues.
Most published financial statements are highly condensed. Appendix A at the
end of the book gives the income statement for Intrawest Corporation. Of course,
condensed statements are supplemented with desired details in the notes to the financial
statements.
AUSTIN SOUND CENTRE INC.
Income Statement
For the Year Ended December 31, 2004
Revenues:
Net sales (net of sales discounts, $1,400,
and returns and allowances, $2,000)........... $165,900
Interest revenue .................................................. 1,000
Total revenues ................................................ 166,900
Expenses:
Cost of goods sold .............................................. $ 90,800
Wages expense .................................................... 10,200
Rent expense ....................................................... 8,400
Interest expense .................................................. 1,500
Insurance expense .............................................. 1,000
Amortization expense—furniture.................... 600
Supplies expense ................................................ 550
Total expenses ................................................ 113,050
Net income ................................................................ $ 53,850
2 Byrd, C., I. Chen, and H. Chapman, Financial Reporting in Canada 1999, Twenty-fourth Edition. (Toronto:
Canadian Institute of Chartered Accountants, 1999), p. 28.