Chapter 7
Inventory: Merchandising Transactions
185
Multistep Income Statement
The income statement of a merchandising business follows the same principles as those of a service
business. Until now, we have been grouping revenue accounts together and listing all expenses
together, without further categorizing. A merchandising business must include the contra-revenue
accounts on the income statement. Sales returns and allowances and sales discounts are subtracted
from sales revenue. This is shown in Figure 7.19. This format of the income statement classifies
expenses by their
nature
.This simply means that expenses are presented together, without further
categorizing them by function.
Tools 4U
Income Statement
For the Year Ended December 31, 2016
Revenue
Sales Revenue
$200,000
Less: Sales Returns and Allowances
$4,000
Sales Discounts
2,000
(6,000)
Interest Revenue
8,000
Total Revenue
202,000
Expenses
Cost of Goods Sold
100,000
Depreciation Expense
5,000
Interest Expense
4,000
Rent Expense
10,000
Salaries Expense
40,000
Supplies Expense
7,000
Utilities Expense
6,000
Total Operating Expenses
172,000
Net Income
$30,000
________________
figure 7.19
