Corrected Gross Income
December 20, 1999
Subject to Review
Last Revised: May 23, 2012 4:50 PM
This Company Policy describes the policy for calculating Corrected Gross Income, CGI, makes a change in the definition of CGI, and refers to another Company Policy which describes new procedures for utilizing the Profit Sharing System and the details of the use of the CGI figure attached to THIS Policy.
Click here for a new item within this Policy that needs to be followed even though parts of this page still need review.
Corrected Gross Income is generally the total gross income for a period, adjusted for various items that may have been included in gross income, as that figure is generated by our computer programs, but which need to be changed, removed or where something was NOT included in GI and now needs to be added. For instance, the computer entry for a sale now includes the amount we charge for California sales tax and shiping. The tax we charge shows up as a part of the gross income as does the shipping cost. We consider that “our” gross income, when converted to CGI, should not include taxes that we collect on behalf of the State of California or shipping charges that are paid by the customer but are not received by us after we have paid the shipping bill.
Thus the CGI should be the gross income as entered into the computer minus the California sales-tax and the shipping charges to come up with the amount of cash which we actually have to spend.
The "minus" referenced above is NOT a part of the usual computer entry of an order or receipt of a payment. The original Master/Entry Program did not have any method of accepting the changes in GI that would automatically record the nature of those changes and produce a "compuer-generated" CGI. The CGI figure has been calculated manually.
The most DIRECT way of handling CGI is for an order entered with payment recorded, but where in the SAME STATISTICAL week, the payment proves to be false, fraud or bounce. The amount of the bounced check is entered for the pertinent customer as a MINUS amount in the field for payment received.
This will give us a separate record (VLIN.dbf) that shows the date, amount and other details for the minus entry.
With no other handling the above results in the total GI for this statistical week to be lower by the minus amount and there is no need to make a manual calculation of the CGI as far as this ONE item is concerned.
This minus item has been entered into the statistics for the week, in the same week when the "wrong" payment (GI) was entered -- the final result is that there is no wrongly inflated GI and no need to include THIS item in any manual CGI calculation for that week.
Also, if we had a sale in one week, and the next week a check payment for that sale is returned, bounced, we can no longer correct the sales statistics for the original/actual week when the sale occurred, but we certainly have to record the truth of the matter. We have to record, somehow, that our previous sales statistics, and the gross income, were higher than they should have been.
The CGI should be calculated every week -- manually. As soon as it can be done the current M/E Program should be revised to allow entry of each and all of the items that go to make up changes in the otherwise-PC-reported GI for that week.
Once that calculation of CGI has been done, it should then also be put into a graph form. The best grahp form would be to have TWO figures on the graph -- one would be the GI, the other would be the CGI. This will allow a glance at the graph to observe when some unusual large or small change was made in the GI to arrive at the CGI.
The CGI is a figure calculated WEEKLY, and based only on the data that is available in that week. If a bounced check appears in week 3, for an order and payment entered in week 1, fine, the CGI is calculated based on the data received in week 3. Then, later, if more data appears, showing another, for instance, bounced check, in week 5, the calculated CGI for that week would include another correction in the GI for week 1, but only showing up in the graph for CGI for week 5.
We make no effort to “correct” past statistics, instead we take the correction and enter it into the CORRECTED GROSS INCOME for the week in which the correction is realized.
Currently, credit card transmissions are sent in as is convenient to handle different products, including products for MSM, for Vibrant Life and for LEES.
We count as immediate cash any entry with currency, a check of a credit card payment. If the check bounces or the card is declined after the entry is made we make a correction in the GI IF IF IF the bounce or decline is discovered in the same week in which the GI was entered, or in the CGI if the bounce or decline is discovered in any later week than the original entry.
CGI starts with a figure for gross income which we get from our computer records: cash received, checks actually received, even if deposited a day or so later plus approved credit cards, even though the credit card has not yet been converted into a bank deposit. After we have that figure for the gross income we then make the adjustments to come up with a final CGI.
There is a concept called "special income." If a customer pays or orders on approved open account terms, but he asks us to ship some days later, that sale is not entered for VSD until it is shipped. It may not be included even in Gross Income. The customer may change his mind and want "HIS" money back. (Even though money is received, not put into the computer as money received, the money must be deposited into a bank account -- for a check.)
If we have a "special sale" and do not yet enter it as a sale or money received and THEN if the person decides to cancel the order and asks for his money hack? That would not be a refund, because we never completed the sale by shipping it to him. So, special income items are NOT part of VSD or of GI. They do not even go into CGI. There is a special category, Special Income, where the money is placed in the bank, but a record kept of "special income." It is never used for contributions to pay or purchses of any product or service, or any bonus or profit sharing system.
Actual “cash in the bank” can only be the figure which the bank shows in its records, and thus we still have to go online to the bank to get the deposits made into the account because of credit card sales. These deposits will be entered into the checking account and checks would never be issued against “uncollected funds” or even "collected funds" that are "special income" and do not represent any shipment by us.
Henceforth, we will take all checks, cash AND credit card sales for a week and consider them the GROSS INCOME of that week. That is what the computer report for “GI” has been, consistently, for many years.
Corrected Gross Income will start with THAT GI figure and subtract any bounced checks (which have not already been deducted), bank charges (usually once per month), credit card service fees, or whatever we become aware of where there is a deduction direct from our checking account as opposed to a bill that we pay by writing a check.
Since the CGI figures are the ones used for Financial Planning, and since we have not previously had a CGI figure separate for MSM, this part of the new procedure will increase the work in calculating the CGI.
We will now combine Vibrant Life and LEES, into one CGI figure, and MSM into a second CGI figure.
Originally, when we started in the MSM business I assumed that we would sell MSM by the ton and have practically no overhead costs associated with a small number of very large sales of MSM.
As it has turned out, we are selling a large number of small sales of MSM. Even though we may occasionally sell a ton of MSM at one time, we also have many sales of only one kilogram at $45. So, we have a large number of small-value sales for MSM.
Our overhead expenses are largely geared to the volume of communication cycles related to a sale.
We get one phone call, handle it, send out literature. We get a phone call, order, ship out the product. These are communication cycles. Whether we ship out 24 bottles or one bottle, that single communication cycle is about the same. It costs us, in terms of administrative support, about the same to ship one bottle or 24 bottles. So, after you have subtracted the cost of the product itself, most of our costs relate to the number of individual communication cycles we perform.
When we answer the phone to handle an inquiry about MSM it costs the same as when we answer questions about other VL products.
We need to start measuring the amount of these communication cycles related to MSM versus Vibrant Life products, and dividing our overhead costs on the basis of that proportion.
It appears now that we probably have more communications per dollar of MSM sale than we do for a unit of Vibrant Life product sale. This figure would be largely influenced by whatever number of large volume purchases might be included in any one period.
Our average Vibrant Life sale is well over $150, while our average MSM sale (taking out the very few large sales) is probably less than $100.
Originally we put the entire proceeds, the entire gross income, from MSM sales into a special bank account. We expected to pay out of that account for purchases of MSM and very specific additional items, such as incoming freight for MSM shipments, and outgoing UPS charges for shipping MSM to our customers. As the nature of our MSM business changed we found it necessary to start charging more items to the MSM account. For instance we needed much more space for storage of MSM than was available in our garage so we felt that it was reasonable to charge the entire cost of the new warehouse to the MSM account.
Other charges have been somewhat sporadic and arbitrary. By this, and additional Company Policies, I want us to get onto a new standard of charging expenses to the MSM business. (We may, instead, come up with a new arrangement and NOT handle these two types of products with different accounting practices.
Originally I did not expect to charge any of our salary costs to the MSM business because I thought the amount of staff time on it would be very low. As it turns out, now, the amount of staff time is much higher than originally anticipated. Nevertheless we have gone for many months without charging any of our staff or overhead costs to the MSM business.
That too, must now change.
CGI – New Definition
The new definition of CGI for Vibrant Life is:
CGI starts with the computer-generated figure of “gross income.”
This GI figure is the total amount charged to a customer for his purchase. It includes the purchase price, shipping and tax, where applicable. From time to time some unusual entry will be made into the computer which results in a change to the gross income figure. This Company Policy does not deal with the definition of Gross Income, but starts with that as it is currently generated by our existing computer program.
The GI figure, provided by the computer report, is broken down into three categories: (1) Vibrant Life, (2) MSM and (3) LEES. This is the start of the calculation of CGI. The remainder of that definition is a list of the types of adjustments, including:
Each of these two starting CGI figures should then be subjected to the same mechanical calculations as we now do for one CGI. These are the typical adjustments for arriving at CGI:
vCredit Card Fees
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