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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Want to grow your business? Fire your bookkeeper

Lots of businesses have bookkeepers but if you really want to grow your business, you need to tell them to pack up their general ledgers and hit the bricks!

Okay, I might be incurring the wrath of bookkeepers everywhere, so let me explain myself before an angry mob of them come knocking on my door with torches, pitchforks, pencils, and calculators.

Bookkeepers ARE valuable to have a in a business. But the function of bookkeepers is largely administrative. They may manage your receivables and payables; they may manage your income statement and balance sheet; they may manage your payroll… and without those functions, your business would not run.

But here’s why I suggest that you fire them:  Read More »

“But my BAD debt isn’t really that bad… is it?”

Unless you get money from customers up-front before you give them the product or service they purchased from you, you will likely get shafted now and then from customers who will never pay.

In spite of your best efforts, these receivables end up getting older and older and you realize that you will never collect from them. Everyday people might call this “hopeless” but in accounting lingo, it’s called “bad debt“.

It’s tempting to just ignore your bad debt. (Hey, no business owner wants to be reminded of a customer who pulled a fast one on them). Unfortunately, doing that will artificially inflate the assets on your balance sheet while also misstating your profit.

But you do need to do something with these numbers! Here’s what to do:

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