Читать книгу How to Read a Financial Report - John A. Tracy - Страница 9

The company in this example sells products on credit. The business offers its customers a short period of time to pay for their purchases. Most of the company’s sales are to other businesses, which demand credit. (In contrast, most retailers selling to individuals accept credit cards instead of extending credit to their customers.) In this example the company collected $51,680,000 from its customers during the year. However, some of this cash inflow was for sales made in the previous year. And, some sales made on credit in the year just ended had not been collected by the end of the year.

At year-end the company had receivables from sales made to its customers during the latter part of the year. These receivables will be collected early next year. Because some cash was collected from last year’s sales and some cash was not collected from sales made in the year just ended, the total amount of cash collections during the year differs from the amount of sales revenue for the year.

Cash disbursements during the year are not the correct amounts for measuring expenses. The company paid $34,760,000 for products that could be sold to customers. At year-end, however, many products were still being held in inventory. These products had not yet been sold by year-end. Only the cost of products sold and delivered to customers during the year should be deducted as expense from sales revenue to measure profit. Don’t you agree?

Furthermore, some of the company’s product costs had not yet been paid by the end of the year. The company buys on credit and takes several weeks to pay its bills. The company has liabilities at year-end for recent product purchases and for operating costs. Further complicating the situation, the company makes cash payments during the year for operating expenses and interest and income tax expenses, but these are not the correct amounts for measuring profit for the year. The company has liabilities at the end of the year for unpaid expenses. The cash outflow amounts shown in Exhibit 1.1 do not include the amounts of unpaid expenses at the end of the year.

In short, cash flows from sales revenue and for expenses are not necessarily the correct amounts for measuring profit for a period of time. Many types of cash flows take place too late or too early so they cannot be used to correctly measure profit for a period. Correct timing is needed to record sales revenue and expenses in the right period. The amounts of cash flows caused by sales and expenses could turn out to be fairly close to the correct accounting amounts—or, they could be vastly different. Even small differences between the cash flow amounts and the correct accounting amounts can cause problems.