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Tuesday, January 5, 2010

My customer paid me but I am not sure how to record it because it's the end of the year.

Again, another great teaching opportunity.  A payment from a customer should always be recorded when it is received.

As a business owner, whether you are going to record your income for tax purposes on an accrual basis (when it is earned) or a cash basis (when it is received), you simply record the payment when it was received.  If you are using Quickbooks you will be able to generate your year-end Profit Loss report for either method.   If the payment was for an invoice already billed or entered as a Sales Receipt at the time the service was provided QB will know how and where to include it on either report.

You can review both versions of your P&L in Quickbooks and then review the information with your tax accountant to determine which method you should use.  Keep in mind that if you have been filing based on the accrual method for prior years, you should not switch to the cash method now.  Do not assume that you should simply pick the method that shows the least reported income each year.  Doing so will under report your income from year to year, and could result in some very nasty tax penalties. 

To view your P&L choose Reports from the top menu bar, then Company & Financial, then Profit & Loss Standard.  You can view this report in either cash or accrual without closing the report.  Simply click on the Modify Report button on the menu at the top of the report window.  From here you can select either the Accrual or Cash method of reporting.

When you are viewing this report, be sure to change the dates to the fiscal year that you will be reporting.  The report automatically defaults to the current month in Quickbooks.  You will be able to read the dates and which method is currently displayed.

The date that you deposit the payment into your bank account is immaterial with either method.  Uncle Sam does not care if you hold that check for 6 months, he wants the taxes on it right away.  Honesty is always the best policy.  If you don't try to fudge any numbers or information, you won't ever have to worry about an audit.

This material is for informational purposes only and not intended and financial, legal or tax advice. Please consult your finance, legal or tax professional to confirm the accuracy of all information. Quickbooks is a registered product of Intuit.

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