Last week we discussed business models, and how many of my clients have been shifting their business models over the last year…and they are finding that the shifting made them more profit, and allowed them to keep more money!
This week, the topic, sounds OH…so boring! How about $83,000 worth of boring! I just saved one of my clients over that much in taxes!
HOW?? It’s based on the “boring” topic of Cash Basis versus Accrual Basis accounting…
All transactions in accounting software are “date-driven” – meaning that the transactions should be entered on the date that they occur; not on the date that you are entering them. This date sensitivity allows your transactions to flow into your reports properly, regardless of whether your business is reporting taxes on a cash-basis or accrual basis. This is especially true of the QuickBooks software!
With this client, some payments from his customers were accidentally posted as being “received” in the previous year, although they were not actually received until the first week of this current year. On his cash-basis system, the profit increased for last year, when it should actually have hit the reports in the current year. By correcting the dates when the payments were truly received, the net profit for those sales is now accurately recorded in this current fiscal year, and by correcting his dates, he saved over $83,000 in taxes last year!
Do you need to know more about Cash Basis and Accrual Basis Accounting, the Matching Principle, and how to take charge of your Accounting?? Our online programs will empower you to do exactly that – minimize your frustration and maximize your time and your profit.
You’ll know what your numbers are and how to use them to make decisions! If you resonate with the above client, or you’d like to run your business profitably, I’d love to hear from you.
Warmest regards for your continuing success,
Accounting Educator (and Rescuer)