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1. • CommentAuthorjohnicornelius
   • CommentTimeOct 30th 2007

    
   I'm a layman in disagreement with our controller-CPA who is telling me how to figure gross margin on my consulting jobs. She is including reimbursed airfare, hotel, rental cars, and meals as part of gross revenue and then deducting it out as an expense later. However, she then divides net income by revenue (including reimbursed travel) to come up with a gross margin that is significantly lower than if she had not included the reimbursed travel expenses. I say it's wrong because no company assets are consumed by the travel, the contract with the client says "consulting + travel" and it is not priced with mark up or profit intended.
   
   Example of how she figures it:
   
   Revenue
   Consultant Fees = 15,200
   Reimbursed Travel = 3,000
   Total = 18,200
   
   Expenses
   Cost of consultants = 9,216
   Travel = 3,000
   Total expenses = 12,216
   
   Income = 5,984
   
   Gross Margin = (Revenue - Expenses) / Revenue = 33% (rounded)
   
   I say, take out the travel since we're not selling it and therefore it's not income. If I do this, the gross margin I get = 39.4%
   
   Who is right and why?
   
   TY,
   John
2. • CommentAuthorneo
   • CommentTimeOct 30th 2007

    
   I honestly think that you are right. The only question that needs answering is this: "who should bear the travel expenses?"
   
   Obviously, it should be the client, right? IF it is expense of the client, why should record that as expense in your book?
   
   Another, what is the definition of expenses in the first place? Expenses are DECREASE in economic BENEFITS during the accounting period in the form of outflows...
   
   Knowing what was stipulated in the contract "consulting + travel", can you still say that incurring reimbursible travel will decrease the firm's economic benefits?
   
   I really don't think it should be recorded as expense in the book rather "Other Receivables" and to be reversed once reimbursed.

   Thankful People: johnicornelius
3. • CommentAuthorjohnicornelius
   • CommentTimeNov 2nd 2007

    
   Thanks Neo for your thoughtful reply; very helpful
4. • CommentAuthorabril
   • CommentTimeNov 8th 2007

    
   its simply, gm = consulting fees - (consulting and travel cost)
   
   she's wrong with the following:
   
   ..net income. it is different from gross margin. to get the net income, you further deduct expenses other than consulting and travel costs. e.g. electricity, phone, tax etc etc.
   
   .. reimbursed travel does not constitute as revenue. i don't think its a receivable either because since its a reimbursement, it should be brought back to its origin. its a deduction to travel cost. reverse the original entry - that is, crediting travel cost.
   
   ..expenses. expenses have different forms. operating expenses are different from consulting and travel cost.
   
   .. gross margin ratio. what she gave is more like net income ratio. it should be:
   gm % = (consulting fees - consulting and travel cost) / consulting fees
   net income ration % = (consulting fees - consulting and travel cost - operation expenses)/consulting fees
5. • CommentAuthoraakbar
   • CommentTimeNov 24th 2007

    
   she is right!!! whenu paid trvl exps u debited it and when u reimbured it u should credit the same ledger. here she it in someother way only. effectly it's Zero only.