Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

4. Merchandising Operations

Multi-step Income Statement

Financial Accounting

4. Merchandising Operations

Multi-step Income Statement

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Multiple Choice

What is the correct order of the main subtotals that appear on a multi-step income statement?

Income Before Taxes, Gross Profit, Net Income, Operating Income

Gross Profit, Operating Income, Income Before Taxes, Net Income

Net Income, Gross Profit, Operating Income, Income Before Taxes

Operating Income, Gross Profit, Net Income, Income Before Taxes

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Verified step by step guidance

Understand the structure of a multi-step income statement, which is designed to provide detailed information about a company's financial performance by breaking down revenues and expenses into specific categories.

Recognize that the main subtotals in a multi-step income statement are presented in a logical sequence to show the progression of profitability from gross profit to net income.

Gross Profit is calculated first by subtracting the cost of goods sold (COGS) from net sales. This subtotal represents the profit generated from core business operations before considering operating expenses.

Operating Income is calculated next by subtracting operating expenses (such as selling, general, and administrative expenses) from gross profit. This subtotal reflects the profit from normal business operations before considering non-operating items.

Income Before Taxes is determined by adding or subtracting non-operating items (such as interest income or expense) to/from operating income. Finally, Net Income is calculated by subtracting income tax expense from income before taxes, representing the company's overall profitability.