Quick Question about Multi-Step Income Statement?

Question

When you're making a standard, multi-step income statement do you

1) Lump all income at the top and then start subtracting expenses by category

or

2) do you only put sales revenue and cost of goods sold at the top and then non-operating income goes down lower alongside non-operating expenses?

Answer 1

Number 2 for manufacturer or retail/wholesale. Number 1 for service business

Answer 2

Retained earnings gets added to the current year's net income (loss). You calculate the current year's net income by subtracting expenses from revenue for the current accounting cycle. The net income account gets closed to retained earings at year end.