The Multi-Step Income Statement: Example & Line Order
Worked Example · Intermediate Accounting
The Multi-Step Income Statement: Where Every Line Goes
A multi-step income statement builds net income in stages — sales → gross profit → operating income → income from continuing operations → net income — then shows other comprehensive income below net income. The midterm makes you place discontinued operations and OCI correctly; one line in the wrong spot loses the marks.
Where every line goes
| Line | Amount |
|---|---|
| Sales revenue | 820,000 |
| Gross profit | 340,000 |
| Operating income | 175,000 |
| Income from continuing operations (after tax) | 128,000 |
| Discontinued operations (net of tax) | (24,000) |
| Net income | 104,000 |
| Other comprehensive income (FVOCI gain) | 12,000 |
| Comprehensive income | 116,000 |
How to build it
Order of operations
- Gross profit = Sales − COGS
- Operating income = Gross profit − operating expenses
- Income from continuing operations (after tax)
- Discontinued operations, net of tax — on its own line
- Net income
- Add OCI → comprehensive income
Not sure what's continuing vs discontinued? A tutor can walk your own numbers — book a session.
The mistake that costs marks
Reporting discontinued operations gross or inside operating expenses. It must appear net of tax, on its own line, after income from continuing operations — and OCI sits below net income, never inside it.
Frequently asked questions
Net income vs comprehensive income?
Net income covers realized results; comprehensive income adds OCI items (like FVOCI gains) that bypass net income until realized.
Why show discontinued operations separately?
So users can see the results of the business that will continue, undistorted by a segment being sold or shut down.
Single-step or multi-step?
Intermediate courses test the multi-step (function) format because it exposes gross profit and operating income.
