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Sources of revenue for financial forecasting of an organization - Term Paper Example

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Corporations can generate revenues in a variety of ways. The source of revenues that typically generates most of the income is sales revenues. Sales revenues occur when a company sells the primary products or services the firm offers. …
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Sources of revenue for financial forecasting of an organization
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Corporations can generate revenues in a variety of ways. The source of revenues that typically generates most of the income is sales revenues. Salesrevenues occur when a company sells the primary products or services the firm offers. A secondary source of revenues many companies used to obtain revenues is the sale of extended warranty contracts. Retailers such as K-Mart offer its customers extended warranty deals on equipment purchased at the store. A third source of revenues a company can generate are e-commerce sales. E-commerce sales can complement the normal revenues of corporations. In 2010 the US e-commerce marketplace reached $153 billion. A fourth form of revenues for corporations is the residual income it can generate from its equity investment. Common stock investments pay dividends typically on an annual basis. A fifth source of revenues is interest income. When companies deposit their cash in banks they obtain interest revenues. Accurately tracking these revenue sources can help managers forecast their sales. Simple regression, multiple regressions and the Delphi model are three good sales forecasting tools that can be used by managers of organizations (Mann, 2000). There are two types of accounting systems. The two major accounting systems are accrued and cash accounting (Weygandt & Kieso & Kimmel, 2003). The most commonly used accounting system is accrued accounting. Accrued accounting is used by most public and private corporations. The cash accounting system has its merits and circumstances in which the system is more suitable for application. A cash basis accounting system recognizes income when cash is collected and expenses when cash is disbursed (Allbusiness, 2011). The cash accounting system is preferable for simple operations that require maintaining a minimum level of cash. An example of a business model in which the use of cash accounting is appropriate is a hot dog vendor. The hot dog vendor depends on the weekly sales in cash to purchase materials to continue operating the next week. People that work in flea markets also should use cash base accounting since their operation deal strictly with cash. The second system used in accounting is accrued based accounting. Accrued based accounting recognizes revenues and expenses when they are incurred irrelevant of whether or not cash was transferred in the transaction (Moneyinstructor, 2009). Accrued based accounting is more suitable for application in the industry because it allows for the use of a more complex and accurate system. For example accrued based accounting enables companies to generate sales on credit and to obtain credit to finance its purchases of raw materials. The two accounts that exist in an accrued accounting system that tracks credit transactions are account receivables and account payable. An account receivable is generated when a firm sells products or services on credit, while an account payable is created when a firm takes merchandise on credit. In the service industry most companies get paid after they render the services. A cash accounting system would not allow a service provider the accounting system it needs to track the economic activity of the firm. The use of accrued based accounting is better suited to track the financial performance of an enterprise on a recurrent basis (Romow, 2010). References Allbusiness.com (2011). Cash vs. Accrual Accounting Methods. Retrieved April 9, 2011 from http://www.allbusiness.com/accounting-reporting/methods-standards-cash/1308-1.html Mann, P. (2000). Statistics for Business and Economics. New York: John Wiley & Sons. Moneyinstructor.com (2009). Accrued Based Accounting. Retrieved April 9, 2011 from http://www.moneyinstructor.com/doc/accrualbased.asp Weygandt, J., Donald., K., Kimmel, P. (2003). Accounting Principles (6th). New York: John Wiley & Sons. Romow.com (2010). Cash vs. Accrued Based Accounting. Retrieved April 9, 2011 from http://www.romow.com/business-blog/cash-versus-accrual-based-accounting/ Read More
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