Comprehensive Multi-Step Income Statement Analysis 2022

The Multi-Step Income Statement is a detailed financial reporting format that provides a breakdown of revenues, costs, and expenses to illustrate how a company arrives at its final net income. Unlike a single-step statement, it distinguishes between operating and non-operating activities.
The period covered for this specific statement is the fiscal year ended on September 30, 2022.
The primary sections of the statement included in this report are:
- Net Sales Calculation
- Gross Profit Determination
- Operating Expenses Breakdown
- Operating Income (EBIT)
- Other Expenses (Non-Operating items)
- Income Before Taxes (EBT)
- Final Net Income

Net Sales represents the actual revenue generated by the business after accounting for deductions from the gross sales figure. In this statement, it is calculated as:
- Sales: $108,500.00$
- Less: Sales Discount: $(1,530.00)$
- Net Sales: $106,970.00$
The Gross Profit margin is determined by subtracting the total Cost of Goods Sold (COGS) from the Net Sales. COGS represents the direct costs associated with producing the goods sold by the company.
- Net Sales: $106,970.00$
- Cost of Goods Sold (COGS): $63,136.00$
- Gross Profit: $43,834.00$
Calculation Formula: $\text{Gross Profit} = \text{Net Sales} - \text{COGS}$ resulting in $43,834.00 = 106,970.00 - 63,136.00$ .

Operating expenses refer to the costs incurred by the business through its normal course of operations, excluding COGS and non-operating costs such as interest. The statement lists the following individual line items:
- Advertising Expense: $842.00$ (Costs related to marketing and promotional activities).
- Utilities Expense: $912.00$ (Costs for services such as electricity, water, and heating).
- Depreciation Expense: $2,410.00$ (Allocation of the cost of tangible assets over their useful lives).
- Sales Salaries Expense: $7,481.00$ (Compensation for personnel directly involved in sales activities).
- Office Salaries Expense: $11,851.00$ (Compensation for administrative and clerical staff).
- Rent Expense: $8,153.00$ (Payments for the use of business premises or equipment).
- Software Expense: $2,194.00$ (Costs associated with licensing or maintaining business software).
- Bad Debt Expense: $189.00$ (The portion of receivables that the company estimates will be uncollectible).
Total Operating Expenses: $34,032.00$
Calculation of Operating Income: This figure is derived by subtracting the total operating expenses from the gross profit.
- Gross Profit: $43,834.00$
- Total Operating Expenses: $34,032.00$
- Operating Income: $9,802.00$ ( $43,834.00 - 34,032.00 = 9,802.00$ ).

Other Expenses are items not directly related to the core operational activities of the business. This section includes financing costs and losses on asset disposals:
- Interest Expense: $429.00$ (The cost of borrowing funds).
- Loss on Sale of Fixed Assets: $799.00$ (The deficit resulting from selling a long-term asset for less than its book value).
- Total Other Expenses: $1,228.00$ ( $429.00 + 799.00 = 1,228.00$ ).
Income Before Taxes (also known as EBT) is reached by subtracting these non-operating expenses from the operating income:
- Operating Income: $9,802.00$
- Total Other Expenses: $1,228.00$
- Income Before Taxes: $8,574.00$ ( $9,802.00 - 1,228.00 = 8,574.00$ ).

The final calculation in the multi-step statement accounts for the tax liability to determine the company's bottom line profitability.
Income Tax Expense: $3,829.00$
Net Income Calculation: This is the definitive profit of the company for the fiscal year ended September 30, 2022.
- Income Before Taxes: $8,574.00$
- Less: Income Tax Expense: $3,829.00$
- Net Income: $4,745.00$
Formula Summary: $\text{Net Income} = \text{Income Before Taxes} - \text{Income Tax Expense}$ resulting in $4,745.00 = 8,574.00 - 3,829.00$ .