Re: [SL] COGS

[<ri...@sy...>]

----- Original Message ----- 
From: "Danny Brow" <da...@fu...>
To: "SL" <sql...@sq...>
Sent: September 19, 2004 11:14 AM
Subject: RE: [SL] COGS


>
>
> On Sun, 2004-09-19 at 10:45, Paul Tammes wrote:
> > I tend to agree here; if these are the facts it would future income
(you
> > invoice something not yet delivered)
> > Delivery would be practically impossible since you did not buy the
computers
> > till January, so all you COULD have sold was air, titled 'computers
yet to
> > be delivered somewhere next year'.
>
>
> I think I will contact a local CPA,

That is a very good idea.

The key question here is, are you an accrual or cash taxpayer?

If you are an accrual taxpayer, you recognize revenue when you invoice
for it, not when you get paid. Also, you recognize expenses when you
order them, not when you pay for them. Technically you should not
invoice for a product or service until on or after the date you deliver
(or ship) it. Otherwise you should claim the money as unearned revenue.
Even taking a deposit on a product should be recognized as a liability
until you have delivered the product or performed a service to "earn" at
least the amount of that deposit.

If you are a cash taxpayer, you recognize revenue when your client pays
the bill, not when you send out the invoice. Same with purchases. You
recognize expenses when you pay for them, not when you receive the
invoice. You  obviously are not allowed to do income one way and
expenses another way.

It is perfectly fine for your customer to recognize an expense in
December and for you to regognize the revenue in January. My CPA does
this all the time, telling clients to mail their checks to him in late
December so he can postpone the income until the next year. Meanwhile,
they paid in December, allowing them to claim the expense in the prior
year.

Rich C.