Q11Q - Intermediate Accounting (Kieso)

Question

What are the advantages and disadvantages of the single-step income statement?

Step-by-Step Solution

Answer

Simplicity, understandability by a layperson, focuses primarily on revenues, and expenses are the various advantages. The absence of showing relationships between the cost of goods sold and sales is considered a disadvantage of a single-step income statement. 

Step 1: Meaning of Single-Step Income statement

The single-step income statement is a format used to report the revenues and expenses of a company. It includes only two major groups, i.e., revenues and expenses.

Step 2: Advantages and disadvantages of a single-step income statement

The advantages of a single-step income statement are this statement format is very simple to present and can be easily understood even by the layperson. This income statement only focuses on the net income calculated by deducting all the expenses from the revenues. The major disadvantage of the single-step income statement is the absence of showing the important relationship between sales revenue and the cost of goods sold. It also excludes the potential classifications such as income from operations, income after and before taxes, etc.