My Income Statement Says I Made a Profit But My Bank Account is Empty. Where’d it go?

The answer to this will be a little bit different depending on whether your books are being kept on an accrual basis or a cash basis. For this article we will assume you are keeping your books on a cash basis.

Simply put, cash basis accounting works like this: income is recognized when the cash comes in and expenses are recorded when they are paid. So, theoretically, the final balance in your checkbook at the end of the year would be the amount of profit you made for the year. So, where did the money go if your profit is greater than your bank balance?

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Tags: Accrual Basis, Asset Purchases, Assets, Bank Balance, Books, Cash Basis Accounting, Checkbook, Company Expenses, Culprit, Doing Business, Income Statement, Little Bit, Money, Office Furniture, Personal Expenditures, Profits, Real Estate

Cash Basis Accounting: The Missing Numbers

Cash basis accounting is used by a large percentage of small businesses. It is used because it is simple to understand and requires very basic record keeping skills to maintain. It also allows a company to pay taxes based only on revenues collected rather than on the full amount of revenues billed.

In cash basis accounting, deposits from sales or services are recorded as revenue. Checks and other forms of outgoing cash are recorded either as cost of goods sold or operating overhead expense. The net results determines the company’s profit or loss. A very simple system, as stated above.

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Tags: Bank Accounts, Cash Balance, Cash Basis Accounting, Cash Position, Checks, Critical Number, Current Assets, Desperate Need, Financial Position, Financial Statements, Overhead Expense, Payables, Point In Time, Profit And Loss, Profit And Loss Statement, Profitability, Receivables, Relationship, Small Businesses, Vendor Invoices

But HOW do You Make Sure Timing is Correct?

Last week we talked about timing and making sure that certain costs were entered when they are relevant. This is a very difficult territory for some and confusing for others.

I am going to try to make it simple (and I hope I’m able to do so!)
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Tags: Abc Inc, Accrual Accounting, Books, Business Income, Business Operations, Cash Basis Accounting, Graphic Designer, Invoice, Irs, January February March, Memory, Money, Pay Taxes, Small Businesses