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Tips to remember – Income is not Cash In

10 April 2016 | Published by AME

Many people think that Income is the same thing as money in the bank.  But this is not necessarily the case.  Income is the Sales that we did that month, regardless of whether the cash has been collected or not.  This is because transactions are recorded when they have occurred in substance, and not just when the cash flows. This is called the accrual basis of accounting.

In the case of income, we need to ask ourselves whether our business has rendered service to the client or not.  If the answer is ‘yes’, we have to record income for accounting purposes.

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Think about a salesperson who has made a big sale to a client this month.  The client has signed all the relevant documents, has taken the physical goods from our store and we have invoiced the client. The client hasn’t paid yet, but has promised to pay in the next 60 days. Has a sale taken place? Of course it has! We have rendered service to the client already. And the salesperson will not be very happy if we try to tell him/her otherwise…

If as a manager you want to legitimately boost your Sales figures for the month or year, you therefore, need to ensure that the business has rendered service to its customers.

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