An income statement is an essential component of a company's financial reporting that is created through a careful process that may take one of the following forms: multi-step or single-step, based on the analysis and reporting objectives for every stage. The simplicity is the single-step income statement is evident when it stands at all revenue and profit and subtracts all costs and losses to determine the net income or loss for the period. Smaller businesses or those in industries where operational segmentation is less significant typically favor this format because it is simple to create and comprehend while offering an overview of a company's overall profit without diving into the details of breaking down different kinds of activity. Although it is so straightforward, it offers less data about the company's effectiveness in several areas. For those that need an in-depth examination of the performance of the company's operations or for businesses that have multiple moving components, this might not be enough.

On the other hand, a multi-step income statement provides an in-depth review of the company's financial health. It differentiates the amount of money the business makes and uses for its ongoing operations from the amount of money it receives and utilizes for other goals. The three main elements of this format usually consist of gross profit (sales less cost of goods manufactured), operating income (gross profit less regular expenses), and net income before taxes (operating income less other income received or paid). This method allows it to be simpler for stakeholders to comprehend how well the business performs in its primary business activities without becoming bogged down in additional financial information like investments or one-time events. Big companies and those with complicated industries may profit greatly from this kind of breakdown, because it provides them with more insight and improves their ability for making decisions.

The income statements, either single-step or multi-step, provide information on the company's earnings or losses for a particular period of time. This data is important to determining the company's financial condition as a whole. According to what they need and who they're practicing it to, a business will select one. Though the multi-step income statement provides a more thorough review of the business's operational performance, the single-step income statement is easy to grasp. Nevertheless, compiling an income statement is a meticulous process no matter what approach is used. In order to guarantee that the numbers are accurate and comparable, it involves gathering all the financial information, appropriately structuring it, and based on the standards.