Sales at your ecommerce business are taking off. Despite the growth, it’s still a simple business with you handling the orders and managing the day-to-day. That means keeping track of sales revenues and expenses doesn’t require a complex financial statement. All you need is a single-step income statement.
Here’s how single-step income statements work, along with their advantages and drawbacks.
What is a single-step income statement?
A single-step income statement is a summary of a business’s profitability that uses one calculation to arrive at net income before taxes—hence the single step. It groups all revenue together regardless of the source and does the same for expenses. It then subtracts expenses from revenue to determine net income.
Small business owners with simple operations, such as sole proprietorships and partnerships, may prefer the single-step income statement. As they grow in size and complexity, businesses graduate to the multi-step income statement, which sorts revenue and expenses into categories and shows how a business determines net income before taxes.
Advantages of single-step income statements
Single-step income statements may offer some advantages to a small business, including:
Easy to prepare
A single-step format is a quick rundown of a business’s activity, almost a back-of-the-envelope calculation. Income and expenses aren’t sorted by whether they’re an operating expense or non-operating expense, and operating expenses aren’t sorted by production costs or overhead.
Easy to read
The statement doesn’t include a lot of detail. It cuts right to the chase by showing the business’s net income without any intermediate steps, such as gross profit or operating profit. Reading a single-step statement requires little financial background, just an ability to look down a short list of numbers for net income.
Easy to maintain
Bookkeeping for the one-step approach is simple, reducing the work an external accountant does to…
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