So far we have looked at the single step income statement. The single step income statement looks something like this:
| Service Revenue |
| Less: Operating Expenses |
| Equals Net Income |
However a merchandise business uses the multi-step income statement. The multi-step income statement shows cost of goods sold above all other expenses. Merchandise businesses keep track of their cost of goods sold separately because it is important to know exactly what the cost of the goods they are reselling is. The amount made after the cost of the goods are sold is called gross margin. Here is the layout of the multi-step income statement:
| Sales Revenue |
| Less: Cost of goods sold |
| Equals: Gross Margin |
| Less: Operating expenses |
| Equals: Operating Income |
| Less: Non-operating expense |
| Equals: Net Income |