The statement of owner's equity and the statement of cash flows are the same for merchandising and service companies. Except for the inventory account, the balance sheet is also the same. But a merchandising company's income statement includes categories that service enterprises do not use. A single‐step income statement for a merchandising company lists net sales under revenues and the cost of goods sold under expenses.
Music World Income Statement For the Year Ended June 30,20X3
| Revenues | |
| Net Sales | | $1,172,000
| Interest Income | | 7,500
| Gain on Sale of Equipment | | 1,500
| Total Revenues | | 1,181,000
| Expenses | |
| Cost of Goods Sold | $596,600 |
| Selling Expenses | 177,000 |
| General and Administrative Expenses | 152,900 |
| Interest Expense | 18,000 |
| Total Expenses | | 944,500
| Net Income | | $ 236.500
Although the single‐step format is easier to read than the multiple‐step format, most companies produce a multiple‐step income statement, which clearly identifies each step in the calculation of net income or net loss.
Music World Income Statement For the Year Ended June 30,20X3
| | | | |
| Sales | | | | $1,240,000
| Less: Sates Returns and Allowances | | | $65,000 |
| Sales Discounts | | | 3,000 | 68,000
| Net Sates | | | | 1,172,000
| Cost of Goods Sold | | | |
| Inventory, July 1,20X2 | | | 37,000 |
| Purchases | | $610,000 | |
| Less: Purchases Returns and Allowances | $9,000 | | |
| Purchases Discounts | 8,000 | 17,000 | |
| Net Purchases | | 593,000 | |
| Add: Freight-In | | 5,600 | |
| Cost of Goods Purchased | | | 598,600 |
| Cost of Goods Available for Sate | | | 635,600 |
| Less: Inventory, June 30,20X3 | | | 39,000 |
| Cost of Goods Sold | | | | 596,600
| Gross Profit | | | | 575,400
| Operating Expenses | | | |
| Selling Expenses | | | |
| Sales Salaries Expense | | 120,000 | |
| Sales Commission Expense | | 21,000 | |
| Delivery Expense | | 15,000 | |
| Store Rent Expense | | 12,000 | |
| Depredation Expense-Store Equipment | | 9,000 | |
| Total Selling Expenses | | | 177,000 |
| General and Administrative Expenses | | | |
| Office Salaries Expense | | 140,000 | |
| Insurance Expense | | 6,000 | |
| Depredation Expense-Office Equipment | | 5,000 | |
| Office Rent Expense | | 1,200 | |
| Office Supplies Expense | | 700 | |
| Total General and Administrative Expenses | | | 152,900 |
| Total Operating Expenses | | | | 329,900
| Operating Income | | | | 245,500
| Other Income/(Expense), Net | | | |
| Interest Income | | | 7,500 |
| Gain on Sate of Equipment | | | 1,500 |
| Interest Expense | | | (18,000) |
| Other Income/(Expense), Net | | | | (9,000)
| Net Income | | | | $236,500