Fleet Management News & Business Info | Commercial Carrier Journal
Issue link: http://read.uberflip.com/i/388078
COMMERCIAL CARRIER JOURNAL | OCTOBER 2014 91 lenders often require a review state- ment by an accounting firm. Since reviews (and audits, too) require the accountant to list any departure from GAAP or accrual, you must move to full accrual-basis account- ing at that point. Cash basis means that you don't record a revenue or expense item until you receive or write the check. Continuing our example, if you use cash-basis accounting, you don't record anything when you complete the haul unless, of course, the ship- per or receiver pays on the spot. When the check arrives, you record it on the P&L as revenue and on the balance sheet as cash. Few compa- nies use the cash basis to keep their books, and there are lots of reasons not to do it. First, it doesn't give a clear picture of real profit or earnings in a given month or year. Because it doesn't match expenses with revenues, using the cash basis can lead to poor business decisions. What looks like a profit can really be a loss. And what's deposited into your checking account does not equal your profits. Second, your bank may not allow you to use the cash basis; it wants to know what you're earning or losing, and the cash method isn't a good indicator of that. Third, the Internal Revenue Service may not allow you to use it. They want you to report on the accrual basis, which doesn't let you manipulate income as easily as the cash basis. Tax basis means that the rules of the IRS are used in deciding how to record transactions. Essentially, your business's P&L mirrors that of your tax returns. For most com- panies, this is a modified version of the accrual basis. Rarely, a company might use a tax basis based on the cash basis. Businesses that do gen- erally are very small; many leased owner-operators use it. If your company's annual finan- cial statements are presented on the tax basis, it's probably because your bank has consented to the practice as a way to save you money on accounting fees. Your accountant saves time and effort if he uses the same basis of accounting for your published financial reports as he does for your tax return. The main difference between the accrual and tax bases is how you calculate depreciation. In addi- tion, sometimes tax rules won't let you deduct an expense in the same period that you record it under accrual-basis reporting. This means your accountant may have to main- tain two sets of numbers, but that's really not as hard as it sounds, given the capabilities of modern software packages. But it still takes time, and to save on accounting fees, you might elect to have your reports prepared on the income tax basis of accounting. Sponsored by: Produced by: In cooperation with: Commercial Carrier University is an educational initiative for owners and managers of trucking companies that are held at select Truckload Carriers Association events. We're certain you will find this program a valuable resource in managing your business more easily and more profitably. CCU's goal is to provide you with an in-depth road map for success through clear advice on basic and advanced business practices. CCU Titles Available: &w to Evaluate Life Cycle Costs &w to Manage Cashflow &w To Plan For Succession &w to Use Financial Statements &w To Write A Business Plan Visit www.commercialcarrieruniversity.com for more information. CCU manuals are available on USB drives and can be purchased online through eTruckerStore.com. COMMERCIAL CARRIER UNIVERSITY