Accountants: Q on recognizing revenue

Shaun @ Tru6 · 01-28-2008, 02:32 PM

Just finished up the books for 07. Interesting year.

We received the last few payments in January (should have received in Nov/Dec) for fall 07 good shipped.

I would like to post these last few invoices paid in fiscal year 2007.

is that doable? or out of bounds illegal?

einreb · 01-28-2008, 03:20 PM

cash or accrual basis?

Shaun @ Tru6 · 01-28-2008, 03:35 PM

Accrual, thank you for asking.

MisterB · 01-28-2008, 03:40 PM

For accrual basis the revenue is recognized when invoicing occurs, hence invoicing should coincide with shipment of product. Invoicing should create an entry for the books to credit revenue and debit accounts receivable. The receipt of cash in 08 would debit cash and credit accounts receivable. The key here is that you are on ACCRUAL BASIS. Hope this helps.

Don Plumley · Don Plumley's Garage

Quote:

Originally Posted by MisterB

For accrual basis the revenue is recognized when invoicing occurs, hence invoicing should coincide with shipment of product. Invoicing should create an entry for the books to credit revenue and debit accounts receivable. The receipt of cash in 08 would debit cash and credit accounts receivable. The key here is that you are on ACCRUAL BASIS. Hope this helps.

Well stated.

And if I understand your question ("post these last few invoices paid in fiscal year 2007"), to be more clear, revenue recognition in accrual accounting is independent of cash receipt. You are talking about backdating cash (AR). Can't do it.

Shaun @ Tru6 · 01-28-2008, 04:07 PM

Thank you Gentleman. to be honest I'm doing too much with too little and basically enter-reconcile money in/out in the first week after the month prior. It all comes down to time and hating MYOB, and clearly I need to get a new small business bookkeeping system, preferably for the Mac.

Thanks again!

Shaun @ Tru6 · 01-28-2008, 04:10 PM

let me ask you this if I can.

Spring 08 line (we make boy's clothing).

We take orders in early Fall 07.
We place a production order in late Fall 07.
We receive goods and pay on receipt or net 30 in January/February 08
We ship goods Jan/Feb 08 and collect $ with CC/COD and give many stores net 30 as well.

When would these be booked?

MisterB · 04:23 PM

Take orders in 07 - No ledger entry
Place production order - No ledger entry
Receive invoice for goods purchased- Debit Inventory/Work In Process Credit Accounts Payable - this would get booked at receipt of invoice
Shipment of Goods - Debit Accounts Receivable and Credit Revenue plus Debit Cost of Goods Sold and Credit Inventory - this would get booked when product ships to customer

When cash is paid for goods purchased Debit Accounts Payable and Credit Cash - this gets booked the date cash is received
When cash is received for payment of invoices issued to customer Debit Cash and Credit Accounts Receivable - this gets booked the date the check is cut and released

VaSteve · 01-28-2008, 04:21 PM

Don't know if "taking orders" means taking money or not...I will assume it doesn't for this example.

Jan/Feb Receipt of Goods

Dr. Merch for sale (some asset account)
Cr. A/P (to supplier) or Cash

Jan/Feb Sales to Customer

Dr. A/R (from customer) or Cash
Cr. Revenue
Dr. Cost of Goods Sold (expense)
Cr. Merch for Sale

The above example "capitalizes" the goods until they are sold. You want to match your expenses with the revenue they helped produce.

Shaun, didn't we talk years ago about you setting up quickbooks? Back then you were trying to make it too complicated.

VaSteve · 01-28-2008, 04:22 PM

misterb and i are on the same wavelength.

MisterB · 01-28-2008, 04:32 PM

+1 match revenue and expenses.....

ideally do not overlook any other items which can minimize your taxable income.... tax books are another story

Ed

Shaun @ Tru6 · 01-28-2008, 04:53 PM

THanks guys.

Steve, yes, you were a big help and I kept individual inventory items out of the books, that was my main takeaway. I've been working non-stop for the last year developing Little Traveler and my memory/knowledge on bookkeeping since the death of G9Girl has suffered. the good news is sales are growing, so I've at least got that going for me. I think I need to spend some time with an accountant especially as I have many questions on capital paid in, draw, etc. and all the various tax consequences.

berettafan · 01-28-2008, 07:15 PM

oh man i feel like i'm reading a CPA exam question...ahhhhh my head!!!!!!

shaun it looks like you're in good hands on the bookkeeping issue but i would like to add something to the already excellent info posted above;

do not attempt to file a corp. tax return on your own.

if you follow the above advice then you will have a competent CPA to chat with about 'tax planning'. the conversation that just played out should have taken place in November/December.

Shaun @ Tru6 · 01-29-2008, 04:56 AM

Quote:

Originally Posted by berettafan

oh man i feel like i'm reading a CPA exam question...ahhhhh my head!!!!!!

shaun it looks like you're in good hands on the bookkeeping issue but i would like to add something to the already excellent info posted above;

do not attempt to file a corp. tax return on your own.

if you follow the above advice then you will have a competent CPA to chat with about 'tax planning'. the conversation that just played out should have taken place in November/December.

good advice, but not too late, I haven't closed the books for last year yet, so easy to make adjustments after a conversation, mostly on how to treat my cap in.

Certainly good advice on having a CPA do the taxes.

Thanks again guys.