In calculating Gross Profits, 2 elements are critical. If you get these right then you shall see the GP margin as close to the actual situation.

1)  Sales – this is the total of all the sales invoices (irrespective of whether the customers made payment to you) minus all discounts & returns from your customers. You may want to track the discounts & returns in a separate account so you will know what is the company’s actual performance. A typical Sales/turnover presentation in P&L is as follows;

Sales / Turnover    1,000

Less: Discounts     (100)

Less: Returns of goods   (500)

Net Sales        400

a)  Discounts here could be trade discounts (ie if a good customer u wanna offer better/competitive pricing) or payment discount to “reward” them to pay you back on time.

b)  Returns of goods means the goods / services that have been rejected by customers. Typically, startups/new entrepreneur will just amend the invoice to reflect the new invoice amount (which is nothing wrong); but you will missed out a few details which will be shared below.

c)  If you have presented in P&L as Net Sales you will only see a total sales of RM400. This is actually the correct amount to state but without the documentation of these discounts & returns, you wont have documentation for these transaction when you wanted to reflect back to see what works & what’s not.

Accounts, in a way, is an organized information of past events. To some it is just some (useless) reports for income tax submission & has of no/little value. To experienced accountant like sifu @Andrew Wong [Boss] it means a lot & shows telltale signs of the current business operations. He will ask, why is there a high returns/rejected goods (50%) what are you going to do to prevent such situation from happening?

So pls change your mindset, accounts; if done properly & on time, will make your business operation grows bigger & smoother.

If you don’t have time to do accounts….. well (ahem)….. you know who you should call, rite[Lovely]?