Читать книгу Reading Financial Reports For Dummies - Lita Epstein - Страница 73

To improve the bottom line, many companies offer their salespeople different kinds of incentives at the end of a month, quarter, or year. The more the salespeople sell, the more income the company records, allowing it to report stronger earnings for that period.

You've probably seen this concept in action if you've ever made a major purchase, such as a car, at the end of the month. You probably found that you could be much more aggressive with your negotiations if the salesperson hadn't met quota or was competing to win a sales contest.

If a company gets really aggressive with its end-of-period revenue-booking practices, it can inflate its actual earnings, especially if salespeople allow customers to sign orders with the promise that they can cancel their orders early in the next month or accounting period. Some companies have gotten into trouble by recording sales on products that weren't yet shipped in order to make a quarterly or monthly goal.

If you're a small business owner looking to manage your tax bill and you use cash-basis accounting, you can ask vendors to hold payments until the beginning of the next year, which will reduce your net income and thereby lower your tax payments for the year.

If the same carpenter uses accrual accounting, their bottom line is different. In this case, they book their expenses when those expenses are actually incurred. The contractor also records the income when they complete the job on December 31, 2021, even though they don’t get the cash payment until 2022. They increase their net income with this job — and also their tax hit. Chapter 7 covers the ins and outs of reporting income on the income statement.