In this article, we discuss income accounts commonly included in a winery chart of accounts. Please see our article concerning the importance of your winery chart of accounts as an introduction to this topic.
Income results from transactions that increase the value, or net worth, of your winery. Income can be a confusing term as it is used to represent many different types of accounting measurements. For example, net income is what we commonly refer to as the “bottom line” and is a topic we will look at more closely in a future article. Net income is not an account, but the “net” combined amount of certain accounts and is also sometimes referred to as profit, or net profit.
Another common term used to describe a “net” amount of certain accounts is operating income. Operating income is income from business operations less expenses from business operations. Also, taxable income is a measure of “net” income used to calculate income taxes – but let’s not go there now!
Revenue accounts are what many people think of when they think of “income” accounts. Revenue is an accounting term that describes amounts earned from providing goods or services in the operation of a business. Revenues are often referred to as sales. Here are some common winery revenue accounts:
- Bottled wine sales
- Bulk wine sales
- Merchandise sales (t-shirts, hats, wineglasses, etc.)
- Event ticket sales
- Shipping fees
We don’t recommend using separate accounts for different sales channels. However, we do think it is essential for wineries to track sales and gross profit by sales channel. We will discuss gross profit in more detail later in this article. There are several methods for tracking sales by channel. Some methods of tracking sales by channel are software specific. We will discuss them further in a future article.
Common winery sales channels include:
- Wine club sales
- Tasting room sales
- Wholesale sales
- Event (onsite) sales
- Festival (offsite) sales
- Online (shopping cart) sales
We also don’t recommend tracking sales of individual items using separate accounts. Item tracking is a very software specific function that we will address in future articles. Using separate accounts for different items is unnecessary and complicates your winery chart of accounts.
Revenue accounts also include customer discounts and sales refunds and allowances. These accounts are “netted” against gross (the amount before deductions) sales (revenues) to arrive at net sales (revenues.)
Gross profit is yet another “net” amount used in reporting financial results. The basic definition of gross profit is “net sales (revenues)” less cost of goods sold. We will look at cost of goods sold more closely in our next article. Gross profit is defined as operating income before deducting operating expenses that are not costs of goods including selling, general and administrative expenses.
As mentioned above, an important measure in a winery is gross profit by sales channel. This indicator measures each sales channels contribution to the total gross profit of your winery. Some channels will contribute more gross profit than others. For example, if winery management determines the tasting room is underperforming, they can take appropriate measures to improve performance. Likewise, if the wine club is very profitable, management may decide to allocate additional sales and marketing resources to promoting the wine club.
Non-operating Revenues and Gains
Non-operating revenues are reported separately from operating income and require separate revenue accounts. Investment revenues such as interest income are a good example of non-operating revenues. These revenues are typically a small portion of the total revenues of a winery. Gains result from the sale of winery assets other than inventory and are reported separately from operations because they are outside of normal winery operations.
Hopefully, our discussion has helped you understand how income accounts fit into your winery chart of accounts. Most wineries need only about ten income accounts for a combination of simplicity and effective management reporting. We hope this article simplifies the seemingly interchangeable use of the terms income, revenue, sales, and profit.
Please stay tuned for our next article discussing cost of goods sold in your winery chart of accounts and contact us if you have any questions or need assistance with any businesses challenges or opportunities you face in managing your winery.
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