Answer
Income is not overstated when the multi-step methodology is used. The difference between the two methodologies lies in the groupings that are used to categorize the income statement items. For the single-step methodology, there are two major groups: revenues and expenses. Comparatively, for the multi-step methodology, there are more groups of items such that the expenses are split further into selling and administrative expenses. There are "Other revenues and Gains" that are different from the ordinary sales revenue. Additionally, the multi-stage methodology has a category of "other expenses and losses." Therefore, when given the same figures, the amount of income arrived at under the single-step is the same as the multi-stage methodology.
Work Step by Step
Income is not overstated when the multi-step methodology is used. The difference between the two methodologies lies in the groupings that are used to categorize the income statement items. For the single-step methodology, there are two major groups: revenues and expenses. Comparatively, for the multi-step methodology, there are more groups of items such that the expenses are split further into selling and administrative expenses. There are "Other revenues and Gains" that are different from the ordinary sales revenue. Additionally, the multi-stage methodology has a category of "other expenses and losses." Therefore, when given the same figures, the amount of income arrived at under the single-step is the same as the multi-stage methodology.
