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Cash Accounting Method - Year End

Discussion in 'Business Fundamentals' started by BossPlow614, Dec 28, 2012.

  1. BossPlow614

    BossPlow614 2000 Club Member
    Messages: 2,870

    I know a fair amount about accounting and taxes, however this one had me stumped and I was seeing if anyone on here knew the answer.
    I'm sending the invoices for snow & ice management services for the month of December, the invoices are dated for 1/1/13, but my question is, is that income to be claimed in 2012 or 2013? Services were done in 2012, however they're to be billed in 2013.
     
  2. grandview

    grandview PlowSite Fanatic
    Messages: 14,609

    I don't count anything till the checks go into my account.
     
  3. agurdo17

    agurdo17 Senior Member
    Messages: 124

    answer your own question. Is ur business based on cash accounting or accrual basis. Cash basis u is based on when u receive the money. accrual is when u pay tax on anything that is already in ur accounts receivable.
     
  4. linckeil

    linckeil PlowSite.com Addict
    from CT
    Messages: 1,265

    what agurdo says is correct. you have to decide on one of the 2 methods - and cannot flip flop between them.

    if you perform work and bill in december 2012, but do not collect until january 2013, then that revenue is reported in 2012 if on the accrual basis. if on cash basis, then the revenue is reported in 2013 when the cash is in your hand.

    now if you perform work in 2012, but do not bill until 2013, then your accounts receivable does not reflect the billing as of the end of 2012, so that revenue would NOT be claimed in 2012 under the accrual basis.
     
  5. RJ lindblom

    RJ lindblom Senior Member
    Messages: 346

    In the title is states he is using the cash accounting method. So it counts when you receive payment in this case January 2013.
     
  6. BossPlow614

    BossPlow614 2000 Club Member
    Messages: 2,870

    I have it figured out now. Thanks guys.
     
  7. NICHOLS LANDSCA

    NICHOLS LANDSCA PlowSite Veteran
    Messages: 4,310

    Kinda sucks but that's how it works. 2010-2011 was a HUGE snowfall year for us, 95% of the November and December invoices were payed in 2011. I had all the expences in 2010 and all the income in 2011. Good for 2010 taxes bad for 2011
     
  8. BossPlow614

    BossPlow614 2000 Club Member
    Messages: 2,870

    That definitely makes it complicated!
     
  9. Oxmow

    Oxmow Senior Member
    Messages: 127

    Neither cash or accrual would matter on your 2012 taxes if your invoice date was Jan 1 2013, being that both would be in 2013.
     
  10. BossPlow614

    BossPlow614 2000 Club Member
    Messages: 2,870

    Ill throw a curveball, what if they were dated on dec 31st?
     
  11. Superior L & L

    Superior L & L PlowSite Veteran
    from MI
    Messages: 3,039

    A little off topic but I would change your billing date to 12/31/12. All our invoices for per service get billed on the last day of the month. Since the work was completed in December it needs to reflect that in a profit and loss statement.
     
  12. BossPlow614

    BossPlow614 2000 Club Member
    Messages: 2,870

    What do you do if it snows on the 31st snd you plow overnight on the 31st and on the 1st?
     
  13. linckeil

    linckeil PlowSite.com Addict
    from CT
    Messages: 1,265

    just to reiterate:

    if on cash basis, revenue claimed in year when cash is in your hand.

    if on accrual basis, revenue claimed in year in which your accounts receivable reflects the balance (i.e. - when billed). for example, work done in 2012, billed in 2012, then its 2012 revenue. work done in 2012, but not billed until 2013, then its 2013 revenue.

    so cash basis is all about when money is in your hands, accrual basis is all about when billed. thats all there is to it.
     
  14. Superior L & L

    Superior L & L PlowSite Veteran
    from MI
    Messages: 3,039

    Yep that's right on. If we plowed overnight on 12/31 overnight we would bill based on when the event started.
     
  15. thelettuceman

    thelettuceman PlowSite.com Addict
    Messages: 1,216

    I don't count anything either. What if they don't pay? .... Your books are really screwed up.
     
  16. BossPlow614

    BossPlow614 2000 Club Member
    Messages: 2,870

    I did some reading, if your business grosses more than 5 mil/yr, you are required to do accural basis accounting. I could see that being a headache for income tax purposes if someone doesn't pay you.
     
  17. thelettuceman

    thelettuceman PlowSite.com Addict
    Messages: 1,216

    I am about 99% away from 5 mil a year. I should say 99% under 5 mil a year ..... Not LOL !!!!!!!
     
  18. ryde307

    ryde307 PlowSite Veteran
    Messages: 3,143

    I do not do any of our book keeping but I know a little.
    We are set up on an accrual basis so our is based on billed date. IN your first scenario both would be on 2013 taxes cash or accrual because you billed after the 31st and would receive payment after the 1st. So either way its 2013.

    The 2nd with billing being on the 31st if accrual it would be on 2012 if cash it would be when payment received so it would be 2013. Someone already said this but just reassuring.

    This time of year gets tricky. It does throw off your exact yearly numbers but being accrual you can date your billing for 2012 or 13 for tax purposes if you need more or less income for 2012.
     
  19. BossPlow614

    BossPlow614 2000 Club Member
    Messages: 2,870

    They were all sent in the mail yesterday dated for 1/1, I want less income shown for this year. If you aren't paid, how is that recorded? A bad debt?
     
  20. Herm Witte

    Herm Witte Senior Member
    Messages: 553

    If you are not paid and you are cash basis accounting, you cam not deduct the debt.

    EmJayDub, your questions on this subject seem to be very elementary and I really encourage you to elist the advice and services of a qualified accountant. That would be a wise move for you.