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Hello Everyone,
So, a company receives pre-payments from customers, every year in the beginning of the season. The money sits in the bank account and earns interest on it. To be fair the company offers back this interest earned in the form of sales discount when the sale is made. To record this whole process, The sales discount offered to customers becomes part of Cost of Sales (COS) and bring down the $ GM line. After the $GM line there are operating expenses. Then comes Earning before Interest Tax Depreciation and Amortization (EBITDA). After the EBITDA comes "Unusual income earned". This unusual income is the interest that was earned on customer pre-payments. The amount is material. So, on one side the company's $GM is effected negatively every time income statement is prepared, on the other hand the if you think of it "Unusual income" is not really "unusual" because it happens every year and is not a one time thing. Following is the income statement (A) is how it is presented now. (B) how the company wants it to be presented.
(A)
Sales
- (Cost of Sales)/ Prepayment Discount
= GM
- Operating Expenses
= EBITDA
+ Unusual income (Interest Earned)
- Tax
= Net Income
(B)
Sales
- (Cost of Sales)/ Prepayment Discount
= GM
- Operating Expenses
+ Unusual income (Interest Earned)
= EBITDA
- Tax
= Net Income
The senior management looks at the (EBITDA) number to see how the company performed every month/quarter/year. Is it possible to include the "Unusual income (Interest Earned)" to make part of operating expenses and call it "Bank Fees" and bring down the operating expenses, since interest earned helps the company year after year. Any thoughts on this, would be greatly appreciated.
Thank you everyone.
So, a company receives pre-payments from customers, every year in the beginning of the season. The money sits in the bank account and earns interest on it. To be fair the company offers back this interest earned in the form of sales discount when the sale is made. To record this whole process, The sales discount offered to customers becomes part of Cost of Sales (COS) and bring down the $ GM line. After the $GM line there are operating expenses. Then comes Earning before Interest Tax Depreciation and Amortization (EBITDA). After the EBITDA comes "Unusual income earned". This unusual income is the interest that was earned on customer pre-payments. The amount is material. So, on one side the company's $GM is effected negatively every time income statement is prepared, on the other hand the if you think of it "Unusual income" is not really "unusual" because it happens every year and is not a one time thing. Following is the income statement (A) is how it is presented now. (B) how the company wants it to be presented.
(A)
Sales
- (Cost of Sales)/ Prepayment Discount
= GM
- Operating Expenses
= EBITDA
+ Unusual income (Interest Earned)
- Tax
= Net Income
(B)
Sales
- (Cost of Sales)/ Prepayment Discount
= GM
- Operating Expenses
+ Unusual income (Interest Earned)
= EBITDA
- Tax
= Net Income
The senior management looks at the (EBITDA) number to see how the company performed every month/quarter/year. Is it possible to include the "Unusual income (Interest Earned)" to make part of operating expenses and call it "Bank Fees" and bring down the operating expenses, since interest earned helps the company year after year. Any thoughts on this, would be greatly appreciated.
Thank you everyone.