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16/05/2020 09:23:59 AM

Revenue and non-revenue-producing

Most businesses and organizations include a combination of revenue- and non-revenue-producing departments or functions.

In accounting, revenue is the income that a business has from its normal business activities, usually from the sale of goods and services to customers. Revenue is also referred to as sales or turnover. 

Revenue-producing departments and functions include manufacturing facilities, retail outlets, service departments, and sales associates.

Non-revenue-producing departments include top to bottom administrative staff and related office functions, maintenance, security, and other organizational activities. All businesses require some level and expenditure of these in order to function. These costs are usually allocated to revenue-producing departments as a line item on the profit center income statement.

In most if not all financial decision-making situations, these costs are not relevant simply because they are unavoidable and will not change. If a revenue-producing department or function is dropped, those non-revenue-producing department costs will simply be allocated to other profit centers.

You have now been introduced to one aspect of “creative accounting.” You can see how easy it is to “create” any financial condition by simply manipulating cost or revenue line items. You can also see how easy it is to make poor financial decisions by using inaccurate information. Some spreadsheets and reports must be presented in a specific format as required by law. Other spreadsheets and reports are presented for internal use only, with no specific rules or guidelines. The good news is thatyou have this opportunity to understand cost and revenue behavior and its relevance to fast, accurate, and smart decision-making.