Elimination of Unrealized Profit Gains or Loss

Why is it important to distinguish between up-stream and downstream sales in the analysis of intercompany profit eliminations?

In  business, sales refers to  exchange of  goods and services  for an  of  amount of money which is equivalent to  commodity .Normally during selling, the highest bidder  takes over the  entire ownership of the property. The process of production of  is dichotomized into two stages, that is  the upstream stage of production and the  downstream  stage, the two  terms are   applicable  to the production process that exist mostly in industries like the oil or metal industry thus making  up the prime stages of production.

According to  Owen–Smith (2005),the upstream stage of production is  whereby  it involves the  extraction of raw materials fromtheir original state, therefore any industry that heavily relies on   extraction of raw materials utilizes the upstream production, for example petroleum industry, locating the underground  oil materials

On the other hand, downstream refers to production process that involves convertingthe collected materials to finished products, the stage also comprise of actual sale of the product to the consumers(Paulraj and Part, 2004). Oil industry clearly reflects the  a structure that operates the downstream process because it consist of converting  crude oil to other products.In general, a company that combines both processes is an integrated  company

Both the processes aim at ensuring   a cohesive relationship between the production firms and the buyers. The interaction further reinforcesthe structural embeddedness hence promoting effective quality and productivity of the materials. Moreover, the greater the cooperation and trust in customers, the greater the effect on concentration of the sales and operational performance hence  boosts the maximization of the profit to an organization(Williamson, 1975).

Get Your Custom Paper From Professional Writers. 100% Plagiarism Free, No AI Generated Content and Good Grade Guarantee. We Have Experts In All Subjects.

Place Your Order Now
Scroll to Top