Cost of goods sold and the income statement

IncomeSo 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