This instructional aid was prepared by the Tallahassee Community College Learning Commons.
Preparing a Multiple Step Income Statement
The adjusted trial Balance for the Year ended December 31, 2010, For ELM Company is shown below:
ELM Company
Adjusted Trial Balance
For the Year ended December 31, 2010
Sales Returns and Allowances
Instructions: Given this data, prepare a multiple-Step Income statement for ELM Company, assuming a
tax rate of 30%.
What to do: Remember to always label your Income statements with the company name, Income
statement and for period ending. When doing a multiple step income statement, one must remember
the key elements.
They are: Net Sales, Cost of Goods Sold, Gross Profit, Total Operating Expenses, net
gain/loss from other activities, Income before taxes, Income tax expense, and Net Income. These items
will be listed on the right hand column of the income statement, and help us understand which accounts
we use in what order. First, we start by determining Net Sales. This is done by taking sales and
subtracting sales returns and allowances and sales discounts. Then, we subtract Cost of Goods Sold
from Net Sales to determine Gross Profit. Next, we total our operating expenses (which are expenses
related to operating the business), and subtract them from our Gross Profit to find our Operating
Income. Then, we add any other revenues/gains and subtract any other expenses/losses. This gives us