Posted by ajd/pa on 1/9/11 5:47pm
Msg #367757

Assigning December expenses/income

This has probably already been discussed recently and I apologize if it has, but I was not sure how to find exactly what I was looking for in the search.
How do you assign December expenses vs income? I guess what I am asking is if you did an assignment in December but did not get paid until January how do you divide it up? Do you count the milage and related paper to December and the income to January, or everything to January? I have been assigning everything that was not paid in December to January (or when it got paid), but I am not sure if I am doing it right.
Sorry if I did not explain this right but I am trying to figure it out.
Also, if the check from the company is dated in December but you don't get it until January, where would you assign it?

Reply by NotaryMI on 1/9/11 5:50pm
Msg #367760

Great Question, I am trying to figure that out to.

Reply by Linda_H/FL on 1/9/11 5:54pm
Msg #367761

I use the cash method of accounting as opposed to the accrual method.

I consider all expenses in the month and year I incur them...so December expenses are considered in 2010..

I consider all income in the month and year I receive it - so December income is income for 2010, January income is for 2011.

Reply by ajd/pa on 1/9/11 5:58pm
Msg #367762

So looking at it this way, you would have the same assignment listed in both 2010 and 2011?

Reply by Linda_H/FL on 1/9/11 6:00pm
Msg #367764

I'd have the expenses accounted for in 2010...the income in 2011 - so yes..

Reply by Julie/MI on 1/9/11 6:03pm
Msg #367765

I look at when the check is dated. Some check I am receiving are 12/31 and therefore will be on the 1099's for 2010.

If it's a company that I will not receive a 1099 for, I will report the income for this year.

Reply by LKT/CA on 1/9/11 6:14pm
Msg #367766

Income is eanrned when the job is completed, not when the check is received....so all income received from work completed in December is 2010 income.

Reply by MikeC/NY on 1/9/11 6:25pm
Msg #367768

Not always true

"Income is eanrned when the job is completed, not when the check is received....so all income received from work completed in December is 2010 income."

This only applies if you're on an accrual basis for taxes. If you're on a cash basis, all income is applied to the year it is RECEIVED, not to the year it is earned.

Reply by BrendaTx on 1/9/11 7:01pm
Msg #367775

I agree, Mike. Your remarks are accurate. n/m

Reply by Linda_H/FL on 1/9/11 6:27pm
Msg #367770

Re: Assigning December expenses/income...Lisa

that's the accrual method..

"Cash-based accounting recognizes income when money is received. Accrual-based accounting recognizes income when goods are shipped or services are rendered. Under the cash method, an expense is recognized when it's paid. Under the accrual method, an expense is recognized when the business is obligated to pay it."

Reply by LKT/CA on 1/9/11 6:39pm
Msg #367772

Re: Assigning December expenses/income...Lisa

Thanks...Hubby handles the taxes...I learned something new.

Reply by MikeC/NY on 1/9/11 6:21pm
Msg #367767

Assuming you are on a cash basis (which most of us are), you book the expenses when you pay them and book the income when you receive it. So anything you spent in December goes against 2010, and any income you receive in January for work performed in December goes against 2011. Don't worry about how to split it - "cash basis" means exactly that, it's the day the cash leaves or enters your pocket.

If you're on an accrual basis, you really need to ask an accountant; there are a lot of other variables involved there, and this is not the place to get answers for that situation.

Reply by ajd/pa on 1/9/11 6:41pm
Msg #367773

Wow, thank you for all of the responses. I have learned, again, from this group.
This has helped a lot.

Reply by JulieD/KS on 1/9/11 7:08pm
Msg #367776

Ask a tax person, not a notary board.

As a tax professional, I can't tell you how many people come to me and tell me that so-and-so told them that this is how you do it. I ask "What does that person do for a living?" "Oh, he's a plumber [or whatever]".

And, I then ask them why they ask for tax advice from a person who doesn't do taxes?

Don't take accounting or tax advice from people on a public board. You won't know if they know what they are talking about or not. Call your tax person or your accountant. If you don't have one, GET ONE.

Reply by Linda Juenger on 1/9/11 7:16pm
Msg #367777

Thank you Julie. Please do not respond if you don't know

the correct answer. This is too important.

Reply by HisHughness on 1/9/11 8:20pm
Msg #367778

Re: Thank you Julie. Please do not respond if you don't know

I think she gave precisely the correct answer, Linda. As an attorney, I can tell you that I don't think it would be very wise to go to a forum for morticians to ask for advice on how to handle an estate.

Reply by John Tennant on 1/9/11 8:38pm
Msg #367780

From a n/m

Reply by John Tennant on 1/9/11 8:38pm
Msg #367782

Re: From a n/m

Reply by John Tennant on 1/9/11 8:44pm
Msg #367783

Sorry people, hit the return too fast

I am a California Registered Tax Preparer and currently in the final stages of becoming an IRS Enrolled Agent. The correct process for the accounting of income and expenses on a cash basis is as follows. When you incur the expense, whether paid by cash, check, or credit card, that is the day and year you account for it. When you receive payment, whether by cash, check, or credit card, that is the day and year you account for it. So, you can perform the work in December but not receive payment until the following year. That income is the following years income. Expenses incured in December will be expenses for the current year, even if you do not pay the credit card statement until the following year.

Happy New Year.

Reply by JulieD/KS on 1/9/11 10:23pm
Msg #367788

Re: Hey John!

I'm an enrolled agent, also! Good luck with your tests...they are boogers, but you'll pass. Glad to know another professional tax person on board here at NotRot.

Reply by KODI/CA on 1/9/11 8:38pm
Msg #367781

Cash Basis n/m

Reply by Linda Juenger on 1/9/11 9:51pm
Msg #367787

Hugh, I think you misunderstood me. I agree with Julie. n/m

Reply by MW/VA on 1/10/11 9:02am
Msg #367804

For tax purposes, if you're using a cash system, income or

expenses are in the month's in which you actually receive & pay. I don't post a payment in my system (QB simple start) until I receive it. You may have money on the books, but it isn't income until you actually receive payment. There isn't really an issue with splitting Dec./Jan., unless you want to make sure you get the proper expenses posted before the end of the year.