First look at below picture:
A simple, condensed statement devoid of all classification except the general groupings:
- Cost and expenses has been developed for stockholders’ reports and other special uses.
Section labeling is at a minimum. The single-step format does not recognize intermediate stages such as gross profit from operations or income before extraordinary items. All income, including rents, interest, dividends, etc., is included in the first section. All costs and expenses are shown in the next, including Federal and state taxes on income. This form tends to be compact and relatively uncluttered at the sacrifice of information. Generally the costs and expenses are classified on the object basis rather than the functional basis.
When the object basis is used, the nature of each cost and expense rather than whether it serves manufacturing,
selling, general and administrative, or some other function is the controlling factor. Examples of this classification are such broad captions as materials, supplies and services purchased salaries and wages, and depreciation. The functional basis, on the other hand, expands the income statement so that it includes major classifications such as cost of goods sold, sales revenues and operating expenses as major headings, with applicable sub functions in each category.
It should be noted that the required separation of ordinary and extraordinary items resulting from application
of APB Opinion No. 9 also applies to the condensed single-step form.