Where do gross profit, operating income, and OCI go on a multi-step income statement?

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AcadiFi · Accepted Answer

A multi-step income statement separates core operating performance from peripheral gains, losses, and financing effects. Gross profit equals net sales minus cost of goods sold. Operating income then adjusts gross profit for selling, general, and administrative expenses plus other normal operating items. Below that, you report nonoperating items such as interest expense, interest revenue, and unusual gains or losses. Net income sits at the bottom of the income statement, while other comprehensive income is reported separately, either in a second statement or in a single continuous statement.

Example: Pine Harbor Foods has sales of $2,400,000, sales returns of $100,000, cost of goods sold of $1,350,000, selling expenses of $280,000, administrative expenses of $190,000, interest expense of $45,000, and an unrealized gain on debt securities of $18,000 that flows to OCI. Net sales are $2,300,000 and gross profit is $950,000. Operating income is $480,000 after operating expenses of $470,000. Net income becomes $435,000 after interest expense. The $18,000 unrealized gain does not go into net income, so comprehensive income is $453,000.

The exam trap is sending OCI items through regular earnings. Think of OCI as bypassing net income for specific GAAP items, while still affecting total comprehensive income and accumulated OCI in equity. If the question asks for EPS, use net income, not comprehensive income. Practice more in our CPA FAR question bank.

Where do gross profit, operating income, and OCI go on a multi-step income statement?

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