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 Post subject: How to record income
PostPosted: Tue Feb 21, 2012 3:24 pm 
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Joined: Tue Feb 21, 2012 3:20 pm
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I'm new to accounting and was curious on the best way to record income. Our company leases an aircraft to an aviation company on a leaseback. We receive the income on the leaseback the month after the lease ie. for January Lease we would receive the check in February. Is it best to record this as deposit/income in February or as a deposit in February and do a JE to move the income to Jan?


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 Post subject: Re: How to record income
PostPosted: Wed Feb 22, 2012 5:06 am 
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Depends on your basic accounting method; the two main ones being "cash basis" and "accrual basis". If you're on the former, the February deposit would be recorded as income when received (February).

If you're on the accrual method, though, the February deposit would be recorded as income for the period in which it was actually earned (January). You'd debit a receivable and credit the revenue in January, then upon receipt of the money in February you'd credit the receivable.


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 Post subject: Re: How to record income
PostPosted: Wed Feb 22, 2012 7:54 am 
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Our tax return is based on a cash basis but when I provide reporting to management it does not show the accruate income and expense for a given month ie. January's income & expense shows in February. when I record the deposit in the month I receive the check. How do Accountant typically provide reporting in regards to this? Is it best to export it to excel and make adjustments?


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 Post subject: Re: How to record income
PostPosted: Wed Feb 22, 2012 8:30 am 
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The point you make is a good one. Frequently the method chosen for tax purposes will be a poor choice for internal management reports, as it won't give an accurate picture of the company's true economic performance.

The answer to how to best handle the dual-method accounting is, I'm afraid, "It depends." Generally, go with whatever procedures involve the least amount of work.

In other words, you're looking at either keeping the books primarily on a cash basis and then periodically producing accrual-based management reports from the data, or (vice-versa) keeping the books on the accrual method, and then periodically generating cash-based tax returns from the data.

Which one is less time-consuming will depend on the particulars of your situation. More often than not the latter approach is probably more efficient, assuming the management reports are produced much more frequently than the tax return.

How you'd physically go about it is also fact-dependent. Some accounting software packages have that functionality built-in; they can produce cash-based and accrual-based statements on demand. E.g., as long as the software knows that a sale to a customer occurred on March 22, and the customer paid on Apr 17, the program would include the sale and the receivable on a Mar 31 accrual P&L, exclude it on a Mar 31 cash P&L, and pick it up as an April transaction on a cash Apr 30 P&L.

If the software won't do the heavy lifting for you, it's usually not a difficult thing to do yourself with a few simple adjustments at year-end. For example, just lay your Dec 31 final accrual-based numbers into a spreadsheet. Then, with an adjustments column, zero off the receivables and the corresponding December sales that created such year-end receivables. Do the same thing for the Dec 31 payables and the December expenses that created them. Similarly, have an adjustment column which brings back in to the current year those end-of-last-year adjustments you made; i.e., the payables you paid back in January, and the receivables you collected in January, which should be considered expenses and income of this year under the cash-basis method.


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