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    13 Replies Latest reply on Aug 28, 2008 2:05 AM by Mybizfiler

    Year End Accounting Question

    Buffalo Adventurer
      I delivered a job last week (12/2007) and payment is net 30. So the money will come in this year. Do I post it to December's sales or January's sales? Or does it really not matter that much? The amount isn't that big but I want to get into the habit of doing things according to correct accounting procedures.
      Thanks in advance for your help!
        • Re: Year End Accounting Question
          DomainDiva Ranger
          I always post mine according to the invoice date.
          1 of 1 people found this helpful
          • Re: Year End Accounting Question
            Ed O'Gee Adventurer
            I agree with the Diva - I always post a sale based on invoice date, however the payment date is what you should be more concerned about since this determines what you pay in taxes.

            Your payment will happen in '08, thus I'd include it as '08 income, so your 2007 taxable income is not increased because of this job. It will save you a few bucks come Feb.

            Hope it helps
            1 of 1 people found this helpful
            • Re: Year End Accounting Question
              guru2008 Wayfarer
              I'm going out on the limb here a little bit....... you are probably using a cash basis type of accounting so the other to post would be correct. But always keep in mind that you always want to defer income which in turn defers Tax Liabilities. and last but not least if you have a chance to bring income into a current tax year which will reduce your future income in that next tax year DO THAT.... example: having a slow year your taxing bracket might be kinder. And last but not least payout what you can at Year End 12/31 to reduce you income.


              • Re: Year End Accounting Question
                Bythebooks Newbie
                The first question to answer is if you're using cash basis or accrual basis accounting for your taxes; the IRS doesn't like a business bouncing back and forth although technically you can change now and again.

                In cash basis, you don't recognize income until it's received and don't recognize expenses until the bills are paid; in accrual, you recognize income as you send out invoices and recognize bills as they are received and no, you're not to mix the two.

                If you're on cash basis, you don't recognize the payment of the invoice unitl the monies are received in 2008. If you're on accrual, you recognize the income based on the invoice date.
                • Re: Year End Accounting Question
                  LUCKIEST Guide
                  Buffalo, How long have you been in business?? It is good to get into the habit of doing things according to correct accounting procedures There are two methods of accounting. One is Cash, the other Accrual.
                  In the Cash method, Income and Expenses happen when the Cash is received and the Expense is paid.
                  The Accrual method. Income is recorded the day the invoice is prepared. It then becomes a Receivable
                  until paid. Expenses are recorded in the month they happen and become a payable until paid.
                  You can choose between Cash and Accrual the in first year of operations. Choose wisely.
                  • Re: Year End Accounting Question
                    savyfinance Newbie
                    The cash basis vs. accrual basis accounting only really matters in terms of the presentation of your financial statements for "book" reporting. The taxing authorities always recognize revenue when the cash or property is received or substantially received by the business.
                    So in summary for tax purposes, you will recognize your revenue when the payment has been received by the client.
                    • Re: Year End Accounting Question
                      AFBBIZ Wayfarer
                      The transaction to which you refer depends on which basis of accounting you are on. If you are a Sole Proprietor, you will probably be on a Cash Basis of accounting. In this event, you record the sale when you receive the payment for your services. If you are a corporation, you would normally be on an Accrual Basis of accounting. The IRS permits small corporations (under $5 million in yearly revenues) to be on a Cash Basis of accounting. But I normally advise corporations from the outset to file on an Accrual Basis. You can only change your basis of accounting once. On an Accrual Basis of accounting, when you invoice the customer is when you recognize the revenue. In your case, that would be in the year 2007.

                      Hope this helps

                      • Re: Year End Accounting Question
                        nytaxguy Wayfarer
                        As a small business you probably want to use cash basis accounting which means you recognize income when you receive it and you rcognize expenses when you pay for them. There are a few exceptions. Cash basis is also easier to keep track of fromthe bookkeeping perspective. Easier usually also means cheaper. The transcation you mention if you don't receive it until 2008 and you elect cash basis method would be a 2008 item. If 2008 will not be your first tax return for the business you have (or should have) already elected an accounting method. You should stay consistent with what you elect. I am a CPA in upstate NY and would be willing to help out with any tax/bookkeeping needs you may have for a reasonable price.
                        • Re: Year End Accounting Question
                          Mybizfiler Adventurer

                          You should first decide which accounting method you are using whether Accrual or Cash method.

                          If you are using Accrual Method of Accounting, you can recognize the income and expenses in the period they occur. If you have delivered the job in December, you can adjust the amount in the last year (2007) financial statements.


                          But, if you are using cash method you need to record the income and expenses actually incurred. As you would be receiving the payment in Jan, you have to record the payment in Jan 2008.


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