> But oh what a difference it makes in the accounting! In the first case, where Autodesk sold the copy of AutoCAD to the dealer, that was the whole transaction; whatever happened to the copy of AutoCAD after the dealer paid for it has no effect on Autodesk’s books. Autodesk sells, dealer pays, end of story. But in the second case, when Autodesk sells to Spacely Sprockets, that appears on Autodesk’s ledger as a sale of AutoCAD for $1000. The instant the $1000 shows up, however, we immediately cut a check for the commission, $500, and mail it to the representative, leaving the same $500 we’d get from the dealer. Same difference, right? Not if you’re an accountant! In the first case, Autodesk made a sale for $500 and ended up, after expenses and taxes, with $125, and therefore is operating with a 25% margin (125/500). In the Spacely sale, however, the books show we sold the product for $1000, yet wound up only with the same $125. So now our margins are a mere 12.5% (125/1000).
I'd like to know how an accountant would respond to the above. Based on his two examples, it seems like accounting rules really distort the financial picture of a company.
I'd like to know how an accountant would respond to the above. Based on his two examples, it seems like accounting rules really distort the financial picture of a company.