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Accounting: The Fussy in The Income Statement 2 Views


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00:00

Accounting Allah shmoop the fussy in the income statement Time

00:06

to dive deeply End up pillow talk Here's a snapshot

00:09

of what their business looked like in the form of

00:11

an income statement three years into their happy adventure All

00:16

right let's cover and rough form what each of these

00:18

lines means Starting with right here revenues will first notice

00:21

that revenues is described as units in thousands Well why

00:25

on earth would they do that Like why in thousands

00:29

Well if a company it's really big and has billions

00:32

or tens of billions in sales and they didn't produce

00:34

their income summary documents in thousands or even in Million's

00:38

All you'd see on the income statement would be a

00:41

whole lot of zeroes or numbers that would add more

00:43

confusion than clarity Note that Hill O's is bold ID

00:47

and pillow apse is bold ID Why Well because there

00:50

are essentially two contributors of revenue Toe pillow talk Those

00:54

two The two products carry vastly different resource needs feathers

00:58

cloths sewing versus computer coders and they produce very different

01:03

profit margins Very low and very high will The resource

01:07

is need for pillows revolves around the raw materials of

01:10

feathers the cotton cloths sewing stuffing in low cost scale

01:14

labor Will the people running the pillows division would look

01:17

across the river at the crazy high tech geeks running

01:20

the Pillow APS division as if they were from a

01:22

different planet Well the Pillow APS resource is require knowledge

01:26

of battery power wireless communication data storage Elektronik billing And

01:31

while digital marketing you know that one too that continually

01:34

assault the sleeper when they're vulnerable and unconscious Well the

01:37

Pillow APS business also is a continuous sales business seeking

01:41

the Celtic customers upgrades all the time Where is the

01:45

pillows Business is a sale that happens once and then

01:48

It's done when companies have two distinct divisions producing revenue

01:52

in this format While they typically carry the data behind

01:54

that revenue in different sections of the income statement Just

01:58

his pillow talk has presented things here For now let's

02:00

move down to the unit Sales lines right there know

02:03

that the company breaks out separately unit sales of pillows

02:06

from the two different ways in which it sells them

02:08

The wholesale channel refers to the notion that the company

02:11

sells large amounts of pillows to retailers who then mark

02:14

up the price of the pillow and sell it to

02:16

an end user So pillow talk is in fact blind

02:20

Toa who it's actually end Customer is when it sells

02:23

pillows threw you know Macy's Nordstrom's needless Mark a Neiman

02:27

Marcus Bloomingdale's and you know both customers remaining at Sears

02:32

Well why is this a problem Well because the company

02:34

envisions the lion share of profits to come from its

02:37

APP sales not from its pillow sales So if it

02:40

doesn't know who its customer is well then how can

02:43

it up sell them premium mumblings from you know Dame

02:47

Judi Dench No Please send me some more information on

02:51

Mr Bond For this reason the company aggressively stuff paper

02:54

cardboard cards inside of every pillow with explicit instructions to

02:58

end users on how to upgrade Well Sales from the

03:01

website channel are in large part much easier when a

03:05

customer orders the product from pillow talk industries dot com

03:08

there queried to fill out a form giving the company

03:11

that key information about him such that they have a

03:14

code to download the free pillow talk apt to their

03:16

phone which will then narrowcast via Bluetooth to the speaker

03:20

enabled device in their pillow the so Norris mumblings of

03:23

N Ba players opining on the economic situation in China

03:27

A few other things to note here The company is

03:30

growing sales in the wholesale channel at only a modest

03:33

clip conveniently there only selling pillows in what appears to

03:36

be exact double zero Numbers having sold 1 . 3 million in

03:41

eighteen there one point five million in nineteen one point

03:43

seven and twenty a growth rate of well barely over

03:46

ten percent but while that growth rate is modest if

03:49

you skip down to the line labeled average sale price

03:52

of pillows from wholesale channel you'll notice that they have

03:56

been able to raise prices fairly aggressively selling into macy's

03:59

et cetera an average price of twenty bucks in eighteen

04:02

twenty two fifty in two thousand nineteen twenty four dollars

04:05

in the hindsight year so not only are they growing

04:07

volumes of a little over ten percent but they're also

04:10

increasing unit pricing over ten percent and a combination allows

04:13

for some twenty plus percent growth from that wholesale channel

04:17

well unit sales from the website channel are growing at

04:20

a dramatically faster pace check this out with five hundred

04:23

thousand units sold in two thousand eighteen The company exactly

04:26

doubled sales to a million units in nineteen and actually

04:29

accelerated growth to two point five million in twenty twenty

04:33

having gone from a doubling of sales in the eighteen

04:35

nineteen period to growing sales at two hundred fifty percent

04:38

in nineteen twenty But note the very different pricing dynamics

04:42

in the following line is the company has actually had

04:44

its average sales price decline at roughly seven percent a

04:48

year going from thirty bucks two twenty eight two twenty

04:50

six over this period Well then we see the revenue

04:52

calculations from the wholesale channel which delivered twenty six million

04:56

in two thousand eighteen thirty three point seven five million

04:59

in nineteen and forty point eight million in twenty twenty

05:01

Then the next line shows the website channel revenues growing

05:04

from fifteen to twenty eight to sixty five million by

05:07

twenty twenty And it's worth noting that the website channel

05:09

Pillow revenues were a little more than half of wholesale

05:12

revenues in two thousand eight I mean we'll buy twenty

05:15

twenty Website sales were over one hundred fifty percent of

05:17

wholesale channel sales and why does it matter so much

05:21

that revenues come from one place or another Well because

05:24

in the management of the company knowing where they get

05:27

the most bang for the buck is a key driver

05:29

for where the company will choose to allocate its relatively

05:32

scarce precious resource is in buying distribution spending on marketing

05:37

and you know applying brain power to make the most

05:40

money for shareholders Lastly note that the total revenues from

05:43

pillow sales line right there that shows forty one million

05:46

growing to sixty one point seven five million growing tio

05:49

one hundred five point eight million in twenty twenty Yeah

05:52

so the above comprises revenue details from sales of feathers

05:55

cotton sewing and labour rather than just revenue details on

05:59

the sale of the actual well pillow Now we move

06:01

on to cover sales of the apse which were paid

06:04

for as a premium upgrade expense when customers chose to

06:07

subsequently download and pay for those abs so that they

06:10

could fall asleep to the calming tidings of North Korean

06:14

Supreme Leader Kim Jeong eun dictating foreign policy Well just

06:18

a CZ we did with the cotton pillows This next

06:20

section breaks up unit sales of upgrades which produced eight

06:23

hundred thousand in two thousand eighteen one point two million

06:25

in nineteen and one point six million twenty twenty Note

06:28

The line average upgrade It stays flat at five bucks

06:32

What does that mean Well it means that over a

06:33

broad sample of customers and different types of APS the

06:36

total incremental spend averaged five bucks a unit or five

06:40

bucks per pillow sold It's important Keep in mind that

06:43

some maps are very expensive while others are very cheap

06:46

And note also that the basic white noise sounds were

06:49

free there given away with pillows So total revenues from

06:52

upgrades go up steadily Four million six million Eight million

06:55

on the final line in the revenues Part of the

06:56

income statement shows total company revenues of AH forty five

06:59

million then sixty seven point seven five million one hundred

07:02

thirteen point eight million total combined revenues from sales of

07:05

pillows and sales of Pillow APS Well we'll get into

07:08

the above line below the line expenses in more detail

07:10

later along with a bunch of other lines that hopefully

07:12

confuse you at this point And by the way if

07:14

we can finagle it the rest of the vids in

07:16

This course will be narrated Not by me but by

07:19

Dame Judi Dench Yeah We're still waiting to get word

07:22

from her agent but trying Hello Judy Help You know 00:07:28.31 --> [endTime] shmoop socks No

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