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Posted by privateuly on April 3, 2007, 1:48 am
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We are filing our 1065 on cash basis and as I understand it,
we deduct credit card expenses based on the year they are
charged, not the year they are paid.
My question is, since we incur expenses in Dec 2006 that we
didn't pay till Jan 2007, do we now have an account payable
in our balance sheet (schedule L) for the 2006 tax return?
Would this be a problem given that we are filing on cash
basis? Does this raise a flag with the IRS? TurboTax warns
that it is unusual for cash-basis filing to have any
accounts payable.
Thank you much.
Uly
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Posted by Herb Smith on April 3, 2007, 6:44 pm
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private...@gmail.com wrote:
> We are filing our 1065 on cash basis and as I understand it,
> we deduct credit card expenses =A0based on the year they are
> charged, not the year they are paid.
>
> My question is, since we incur expenses in Dec 2006 that we
> didn't pay till Jan 2007, do we now have an account payable
> in our balance sheet (schedule L) for the 2006 tax return?
> Would this be a problem given that we are filing on cash
> basis? Does this raise a flag with the IRS? =A0TurboTax warns
> that it is unusual for cash-basis filing to have any
> accounts payable.
You don't have any accounts payable. You paid the bill by
charging it through a third-party (your credit card). When
you pay the credit card bill is irrelevant and has nothing
to do with your business finances.
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by Harlan Lunsford on April 4, 2007, 2:20 pm
Please log in for more thread options Herb Smith wrote:
> private...@gmail.com wrote:
>> We are filing our 1065 on cash basis and as I understand it,
>> we deduct credit card expenses =A0based on the year they are
>> charged, not the year they are paid.
>>
>> My question is, since we incur expenses in Dec 2006 that we
>> didn't pay till Jan 2007, do we now have an account payable
>> in our balance sheet (schedule L) for the 2006 tax return?
>> Would this be a problem given that we are filing on cash
>> basis? Does this raise a flag with the IRS? =A0TurboTax warns
>> that it is unusual for cash-basis filing to have any
>> accounts payable.
> You don't have any accounts payable. You paid the bill by
> charging it through a third-party (your credit card). When
> you pay the credit card bill is irrelevant and has nothing
> to do with your business finances.
In that case then, what entry will you make on the books?
The debit(s) will be to expense(s); and the credit
to........ ??
ChEAr$,
Harlan Lunsford, EA n LA
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by privateuly on April 4, 2007, 2:20 pm
Please log in for more thread options > You don't have any accounts payable. You paid the bill by
> charging it through a third-party (your credit card). When
> you pay the credit card bill is irrelevant and has nothing
> to do with your business finances.
Hi Herb, thanks for the answer but I still don't understand
how I can get my balance sheet to balance if I don't have
account payable.
Say I have $100 expense charged to my credit card on Dec 30,
2006. So I include this expense for 2006 which would reduce
our P/L, which in turn reduces retained earnings, which in
turn reduces our capital account. So I need a corresponding
entry to make our Balance Sheet balance. Since we don't pay
this expense until Jan 07, as of Dec 31 2006, our cash
balance doesn't yet reflect this expense. So, we balance
our book by having a liability account.
Is my logic incorrect?
Regards,
Uly
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by Harlan Lunsford on April 5, 2007, 1:49 am
Please log in for more thread options >> You don't have any accounts payable. You paid the bill by
>> charging it through a third-party (your credit card). When
>> you pay the credit card bill is irrelevant and has nothing
>> to do with your business finances.
> Hi Herb, thanks for the answer but I still don't understand
> how I can get my balance sheet to balance if I don't have
> account payable.
>
> Say I have $100 expense charged to my credit card on Dec 30,
> 2006. So I include this expense for 2006 which would reduce
> our P/L, which in turn reduces retained earnings, which in
> turn reduces our capital account. So I need a corresponding
> entry to make our Balance Sheet balance. Since we don't pay
> this expense until Jan 07, as of Dec 31 2006, our cash
> balance doesn't yet reflect this expense. So, we balance
> our book by having a liability account.
>
> Is my logic incorrect?
Not at all.
However, you speak of filing a 1065 which is a partnership
return, meaning two or more partners.
First, does the partnership have a separate credit card in
just it's name? I doubt it. Which leaves you as a partner
having the expense charged to your card.
The partnership therefore owe you personally for what was
charged. It's bookkeeping entry is a debit to expense(s)
and a credit to your capital account. Similarly if your
partner also used his card.
Or you could treat it as a short term partner loan, and
therefore as a payable if to be paid within a short time.
ChEAr$,
Harlan Lunsford, EA n LA
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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