Unreported Sales Revenue and Expenses
Some sales revenue and expense information that managers need is not reported in the external income statement of a business. Analyzing profit is a very open-ended process. There are many ways to slice and dice sales and expense data.
Here’s a sampling of the kinds of accounting information that business managers need either in their P&L reports or in supplementary schedules and analyses:
Sales volumes (quantities sold) for all sources of sales revenue.
List sales prices and discounts, allowances, and rebates against list sales prices. For many businesses sales pricing is a two-sided affair that starts with list prices (such as manufacturer’s suggested retail price) and includes deductions of all sorts from the list prices.
Sales returns — products that were bought but later returned by customers.
Special incentives offer by suppliers that effectively reduce the purchase cost of products.
Abnormal charges for embezzlement and pilfer age losses.
Significant variations in discretionary expenses from year to year, such as repair and maintenance, employee training costs, and advertising.
Illegal payments to secure business, including bribes, kickbacks, and other under-the-table payments. Keep in mind that businesses are not willing to admit to making such payments; much less report them in internal communications. Therefore, the manager should know how these payments are disguised in the accounts of the business.
Sales revenue and margin for new products.
Significant changes in fixed costs and reasons for the changes.
Expenses that surged much more than increases in sales volume or sales revenue.
New expenses that show up for the first time.
Accounting changes (if any) regarding when sales revenue and expenses are recorded.
The bulleted-list items don’t constitute an exhaustive list. But the list covers many important types of information that managers need in order to interpret their P&L reports and to plan profit improvements in the future. Managers have only so much time at their disposal, but they should take the time to understand and analyze the main factors that drive profit.