Multiple Choice
Which of the following best describes the contribution format of an income statement for a retailer?
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4. Merchandising Operations
Single-step Income Statement
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On a traditional single-step income statement, how is net income calculated?
A
By subtracting total expenses from total revenues
B
By subtracting cost of goods sold from sales revenue
C
By subtracting operating expenses from gross profit
D
By adding operating income to non-operating income
Verified step by step guidance1
Understand the structure of a single-step income statement: It simplifies the calculation of net income by grouping all revenues together and all expenses together, without distinguishing between operating and non-operating items.
Identify total revenues: This includes all income generated by the business, such as sales revenue, service revenue, and any other income sources.
Identify total expenses: This includes all costs incurred by the business, such as cost of goods sold, operating expenses, and non-operating expenses.
Calculate net income: Subtract total expenses from total revenues using the formula:
Review the options provided in the problem: The correct answer aligns with the single-step income statement approach, which is 'By subtracting total expenses from total revenues.'
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