Chapter 7
Inventory: Merchandising Transactions
187
Figure 7.21, in a
classified multistep income statement
. Classified multistep income statements
further divide expenses into selling and administrative categories.
tools 4u
Income statement
For the year ended december 31, 2016
sales revenue
$200,000
Less: Sales Returns and Allowances
$4,000
Sales Discounts
2,000 (6,000)
Net Sales
194,000
Cost of Goods Sold
100,000
gross Profit
94,000
operating expenses
selling expenses
Depreciation expense
$5,000
Rent expense
8,000
Salaries expense
32,000
utilities expense
4,800
Total Selling expenses
49,800
administrative expenses
Rent expense
2,000
Salaries expense
8,000
Supplies expense
7,000
utilities expense
1,200
Total Administrative expenses
18,200
Total Operating expenses
68,000
operating Income
26,000
other revenue and expenses
Interest Revenue
8,000
Interest expense
(4,000)
4,000
net Income
$30,000
________________
fIGuRe 7.21
The classified multistep income statement is particularly useful for the company’s internal analysis.
It allows managers and executives to clearly see a detailed breakdown of costs by department and
compare performance in different areas against competitors and its own financial history.
ASPe allows a company to choose to present its expenses on an income statement by nature, by
function, or even by using a mixture of nature and function.
under IfRS, expenses can be classified either by nature or by function on an income statement. using a
mixture of nature and function is prohibited.
ASPE vs IFRS
1. Calculate Net
Sales and Gross
Profit
2. Calculate Selling
expenses
3. Calculate
Administrative
expenses and
Operating Income
4. Calculate non-
operating activities
and Net Income
