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What are the three sections of a multi-step income statement? and what do they consist of?

User Maggy
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Final answer:

A multi-step income statement consists of three sections: Gross Profit, Operating Income, and Net Income. Each section provides insight into different aspects of a company's financial performance, demonstrating profitability and efficiency.

Step-by-step explanation:

The three sections of a multi-step income statement consist of:

  • Gross Profit: This section begins with sales revenue, subtracts the cost of goods sold, and results in the gross profit. It highlights the profitability of a company's core business activities.
  • Operating Income: This section factors in operating expenses such as selling, general, and administrative expenses (SG&A) from the gross profit to determine the operating income. This helps assess how efficiently a company is running its core operations.
  • Net Income: This final section accounts for non-operating items, such as interest, taxes, and one-time transactions, subtracted from operating income to arrive at the net income. This measures the overall profitability of the company after all financial activities.

Each section provides an in-depth look at a company's financial performance, making the multi-step income statement a valuable tool for analysis.

User Betzy
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