# Cash Accounting Method - Year End



## BossPlow614 (May 27, 2009)

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.


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## grandview (Oct 9, 2005)

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


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## agurdo17 (Sep 15, 2011)

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.


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## linckeil (Sep 18, 2007)

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.


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## RJ lindblom (Sep 21, 2006)

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


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## BossPlow614 (May 27, 2009)

I have it figured out now. Thanks guys.


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## NICHOLS LANDSCA (Sep 15, 2007)

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


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## BossPlow614 (May 27, 2009)

That definitely makes it complicated!


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## Oxmow (Dec 6, 2006)

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.


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## BossPlow614 (May 27, 2009)

Ill throw a curveball, what if they were dated on dec 31st?


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## Superior L & L (Oct 6, 2006)

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.


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## BossPlow614 (May 27, 2009)

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


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## linckeil (Sep 18, 2007)

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.


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## Superior L & L (Oct 6, 2006)

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


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## thelettuceman (Nov 23, 2010)

grandview;1550216 said:


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


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


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## BossPlow614 (May 27, 2009)

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.


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## thelettuceman (Nov 23, 2010)

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


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## ryde307 (Dec 3, 2009)

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.


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## BossPlow614 (May 27, 2009)

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?


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## Herm Witte (Jan 27, 2009)

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.


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## BossPlow614 (May 27, 2009)

Forget you. Plain and simple. I posted it on here because I don't want to contact my cpa on a matter such as this and it was above what I knew. However with what the considerate members have said, they helped me with the question.


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## linckeil (Sep 18, 2007)

you could be building up a reserve throughout the year known as "allowance for bad debt". this should be based on the percentage of billings you do not expect to receive. maybe 5% is a reasonable number (it depends on your experiences). "allowance for bad debt" is a liability account that is used to offset recievables that need to be written off in the event of non-payment. as you build up this allowance account over time, the offsetting debit is to "bad debt expense", thus the P&L hit is taken gradually and not all at once. 

you do not need to set up an allowance account, but for larger companies with a good probablity of not getting paid, it is wise to do. for smaller companies just take the hit to "bad debt expense" when you do not get paid, as opposed to building up a reserve. 

and it would be a good idea to sit down with an accountant to see what they recommend in your case.


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## Herm Witte (Jan 27, 2009)

EmJayDub;1552046 said:


> Forget you. Plain and simple. I posted it on here because I don't want to contact my cpa on a matter such as this and it was above what I knew. However with what the considerate members have said, they helped me with the question.


Why the anger? If you are offended you should not be. You asked a question and I answered it. I also gave you some advice, as others have done as well. My advice comes from my expierience of 40 plus years in the industry. Once again, there was no need to display the anger in your reply. My desire for you is to success in business, not fail.


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## ryde307 (Dec 3, 2009)

If you are accrual then unpaid invoices get written off as bad debt


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## BossPlow614 (May 27, 2009)

Thanks for the info guys.


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## BossPlow614 (May 27, 2009)

After giving it some thought, I'd like to apologize for what I had said earlier to Herm Witte, I had taken what he said in the wrong tone.


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## Herm Witte (Jan 27, 2009)

EmJayDub;1554258 said:


> After giving it some thought, I'd like to apologize for what I had said earlier to Herm Witte, I had taken what he said in the wrong tone.


Apology accepted. Happy New Year!


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## BossPlow614 (May 27, 2009)

Same to you, may this new year be prosperous to all of us!


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