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Writing Assignment On Accounting Cycle

This is a basic accounting course assignment on single-step and multi-step income statement presentations.

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letekidan seifu
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46 views3 pages

Writing Assignment On Accounting Cycle

This is a basic accounting course assignment on single-step and multi-step income statement presentations.

Uploaded by

letekidan seifu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Completing the Accounting Cycle and Merchandise Inventory Systems

When preparing an income statement for a small business, we have the single-step income

statement or a multi-step income statement; depending on the purpose of creating this statement

and what kind of business I am working in. basically both report to the revenue, profit, and loss

and expenses during a specific period. The differences between these two types are:

A single-step income statement presents a company's profit in one simple equation to calculate

the profit.

Net Income = (Revenues + Gains) - (Expenses + Losses)

A multi-step income statement provides the same information overall but with multiple equations

and more described information; it separates operating and non-operating and expenses by

following three different accounting formulas according to (Robert, 2021)

1. Gross Profit = Net Sales - Cost of Goods Sold

2. Operating Income = Gross Profit - Operating Expenses

3. Net Income = Operating Income + Non-operating Items

The purpose of an income statement for a retail business is to show how much loss of profit this

business is making during a certain period; It can be a monthly, quarterly, or yearly report. It's

important because it gives a clear idea of the organization is doing an excellent job by numbers,

how and where to fix errors to make the business more successful, and making the correct

decision if investing in this business or waiting for another chance.


When choosing a statement format; ill go with the single-step income statement; because I was

asked to give the investors, lenders, and management enough information but not too much

information to be revealed; when I use the equation, I can clear my numbers and how successful

the business is to encourage investors or lenders.

As for the benefits and challenges of my choice of statement; a single-step income statement is

easy to prepare and easy to read; when using this type, it requires making fewer calculations and

not breaking the down operating versus non-operating line items; this means less time to prepare

myself and my report and focus on the purpose behind the report. Nevertheless; the person who

will be reading the statement will not struggle with much information that might not be needed at

the moment; when the report focuses on the how well financially my business is performing and

getting directly to the bottom line, I am giving the investor or lender more space to think of how

well we are doing and what changes they have over here. On the other side and in the absence of

important information such as the operating margin data and the gross margin, investors might

find the one-step statement is a little foggy, or these information is too thin to determine if the

business will remain profitable. The missing of most expenses resources might lead the

investors to look for a better chance, and the company will lose an ample opportunity.

In conclusion, every step in business is crucial and can be fateful; sometimes we need to take

more risks to give ourselves the chance to glow but not a well-studied move, playing smart is

the key behind every success.

References
Banton, C. (2019). Differences Between Single-Step and Multiple-Step Income Statements.

Investopedia. https://www.investopedia.com/ask/answers/102714/what-are-main-

differences-between-single-step-and-multiple-step-income-statements.asp

Franklin, M., Graybeal, P., & Cooper, D. (2019). Principles of Accounting: Vol. volume 1.

Financial Accounting. https://openstax.org/details/books/principles-financial-accounting?

Book%20details

Robert, C. (2021, June 24). FAQs Business Owners Need to Know About The 3 Essential

Financial Reports. InDinero. https://www.indinero.com/blog/faqs-3-essential-business-

financial-reports

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