1156 posts
Finance Question 5
I work in the US. Other companies pay us to use their waste as fuels in some of our processes. Essentially, we are then generating revenue for the use of those specific fuels. Currently, the revenue is being accounted for as a contra expense on our income statement. Some believe that all revenue is revenue and the alternative fuels payment should therefore be accounted for as revenue on our income statement. Others argue that the alternative fuels process is taking place within a cost center, one of our manufacturing plants, and all revenues should role up into the costs of the of the plant, which is what we are doing now by treating the alternative fuels' revenue as a contra expense. Is there is an industry standard or norm for the accounting of this process
Know the answer to this question? Join the community and register for a free guest account to post a reply.
1156 posts
Re: Finance
I do not think there is an industry standard. It would be more a case of a company standard or country standard requirements. I have heard a number of energy directors expressing the target or objective of achieving "negative fuel costs". It seems to me that this corresponds with what you are doing by counting the revenue as "contra expense". I cannot see how a company could achieve negative fuel costs without counting the revenues for burning the alternatives against the traditional fuel costs. Whether this is strictly correct in accounting practice I don't know.