CHAPTER 7

SALES REVENUE, TRADE ACCOUNTS RECEIVABLE, AND DEFERRED REVENUE

Exploring One Link at a Time

There is one simple premise in operating a business—if you don’t generate sales you will eventually fail! All businesses need to generate real and legitimate sales or revenue (often used interchangeably or together), in one form or another, in hopes of generating a profit, and eventually producing positive cash flow. A perfect case study in what it means to fail on the sales front is centered on the grand dot-com experiment of the late 1990s through early 2000s. This era was built on the hope of eventually being able to generate significant increases in sales from developing, launching, and building a business model based on the promise and wonders of “cyberspace.” The eventual outcome of this era is well known, as the failure rate of the dot-com or technology-based businesses during this era was more than 90 percent, further supported by the fact the Nasdaq dropped from its all-time high of 5,049 reached on 3/10/2000 by a whopping 77 percent to 1,140 on 10/4/2002 (in roughly two-and-a-half years).

Real World Story
In the opening paragraph, reference is made to generating “real” or “legitimate” sales, which to the reader of this book seems like a no-brainer. However, in the early 2000s, not only did a large number of well-meaning dot-com companies fail but in addition, this era also experienced some of the most costly and best known fraud cases in history. Enron and WorldCom ...

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