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Finance for Non-Financial Managers
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Tricks That Tempt Managers into Trouble
When the outside world looks so intently at a compa-
ny’s sales for clues as to its success, it’s sometimes hard
for some companies to resist the temptation to cut corners in the
interest of making their shareholders and potential shareholders smile.
Because some of the accounting rules seem to have room for inter-
pretation, occasionally they get interpreted all the way into the next
room. Here are some examples that you will want to look out for:
• Recording sales too soon, before the transaction is complete, e.g.,
such as when the quarter is ending and the CFO wants the compa-
ny to look good.
• Recording sales too late, e.g., waiting until the next month or quar-
ter because your CFO doesn’t expect that quarter to look as good
as this one, and he wants to even them out a bit.
• Recording sales that haven’t really happened (yet), but that the CFO
is sure will happen momentarily, and so why not slip them in a bit
early?

product or service sold, including the cost of delivering the mer-
chandise or components to the selling company. It should also
include the costs of other services that were packaged and sold
along with the product, such as installation and training (if they
were a part of the sale). Finally, it might also include directly
related selling expenses, such as costs of delivery to the cus-
tomer and sales commissions paid to salespeople, although this
is not a universal practice. This may also carry the label cost of
goods sold, if selling expenses are shown elsewhere.

Gross Profit: The First Measure of Profitability
This is a key measure of profitability, one we’ll talk about in
more depth in Chapters 7 and 8. Gross profit is the gain the
company earns after selling its products and paying for all ele-
ments of the cost of sales. Earning a gross profit is very impor-
tant, because the difference between sales and the cost of sales
normally pays all of the operating expenses discussed below. In
other words, if you sell each widget at a loss, it’s highly unlikely
you will make it up the loss through volume.