What are the reasons for the differences in accounting terms between companies?
For example, Apple may write (revenue), but another
company may write it (sales).
(Cost of goods sold) may be in another company (cost of
sales)
Why is that?
What are the pros and cons of this diversity and
difference?
Answer:- The reason fr the the difference in accounting terms between companies is because of the following reasons as mentioned above:
1)Let first understand the difference in revenue and sales and which term is taken by the company i.e revenue or sales.
SALES:- Sales refer to the selling of goods and services to customers,in exchange for money,during the financial year. |
REVENUE:- The proceeds received by the business,through its diverse source is known as revenue. |
SALES:- Source of company's revenue |
REVENUE :- Outcome of sales. |
SALES:- Operating revenue |
Sales :- Total revenue |
SALES: It incorporateEconomic value of product and services received from customers. |
REVENUE:- It incorportate all sources of income,i.e,sales,interest,dividend,royalty etc. |
SALES:- Sales cannot exist without revenue. |
REVENUE:- Yes,it separate existence of revenue without sales is possible. |
NOW,let understand by EXAMPLE,how this terms is taken by the company.
Example 1 – Revenue is greater than Sales
Sales can be said as the price paid by the customers for the company’s goods or services.
It is common practice that large companies don’t fully depend on sales for its revenue but also have other kinds of income like investments, service, interest, royalties, fees, and donations to name a few.
If the total sales of Sweet Umbrella Inc. are $200 billion and the incomes generated by other means are $4 billion, then the total revenue generated by Sweet Umbrella Inc. is $204 billion.
This clearly shows that revenue will be more than the sales in this case.
Example 2 – Sales is greater than Revenue
Think about the first item of the income statement of the company. It is gross sales. Why do we call it gross sales? It’s because it’s a figure that includes the sales returns/sales discounts (if any). When we deduct the sales returns/sales discount from the gross sales, we get the revenue (net sales).
In this case, sales are more than revenue.
For example, if the total sales of Greenery Company are $20,000, the cost incurred due to replacement is $400 and the cost incurred due to other discounts and deductions be $1600. Then the total revenue generated by the Greenery Company is $18,000.
The above example clearly shows that sales are more than revenue in the above case.
2)Let understand the difference between the cost of goods sold and cost sales,and which term is used by the company and why?
COST OF SALES |
COST OF GOODS SOLD |
1) Tax is not deductible. |
1)Tax is deductible. |
2)Service organization record cost of sales to account for direct costs related to delivering a service. |
2)Manufacturing organizations record cost of goods sold to account for direct cost related to producing goods. |
So, for example, we may have sold 100 units this year at $4 each, and these 100 units that we sold cost us $3 each originally. So our sales would be $400 and our cost of the goods we sold (cost of sales) would amount to $300. This would result in a gross profit of $100 (sales minus cost of sales).
Cost of Goods Sold doesn't include general expenses such as wages and salaries to office staff, advertising expenses, etc. It is simply the direct costs of the inventory that we have sold during the year.
ANSWER: The pros and cons of this diversity are as follows:-
PROS OF THE DIVERSITY:-
1)Working with Individuals Having Various
Skillsets
It is safe to say that each employee should have a variety of
skills that can be utilized to excel on their job. This can be
based on the educational background of the employee, others take
interests and hobbies as a basis, and some take pride on their
generation and age.
2) Good Opportunity for Mentoring
Young professionals shouldn’t consider this hard to understand.
This is because they can have a good option to have a mentor to
help them accelerate and progress in their careers. For offices
that promote diversity of age, the younger generation should be
able to seek the help from professionals with more years of
experience, which could be a great mentor.
3)Easier to Engage in Internal
Cross-Training
This can be done if departments can work together as a team. More
so, if companies should be able to increase overseas employment,
then it could lead to increase in the understanding of cultures or
simply a world without borders. Thus, employees having differences
in terms of generation, department, culture, and others should have
an opportunity to seek common ties in professional and team-related
objectives.
CONS OF THE DIVERSITY:-
1) Difficulty to Communicate
Just as there is diversity in a population, environments with
various generations working towards a common goal should find it
hard to communicate or understand each other. This is possible for
a workforce to deal with people from different generations. Thus,
it is essential to have balance when there are conflicting opinions
and needs.
2) Exposure to Differing Perspectives and
Opinions
Although this might sound positive for most people, this can also
be negative once you consider a new workplace. This is because
diverse perspectives and opinions can also be distracting as it can
build a hostile environment to work.
3)Selecting Candidates for a Position
There is said to be conflict that could result in the selection of
the right company as well as selecting a more diverse candidate who
is more suitable for the job.
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