When things don’t fit in the box

When tracking your finances, most everything fits in a specific box: cash, balance sheet, inventory, fixed assets, accounts payable, loans, and capital investment. But there are some things that don’t fit in a specific box, like rewards or rebates. And other things can get confusing as to what goes where, like differentiating between business and personal expenses.

Let’s look at a few examples where things can get confusing and try to clarify how you should handle these.

Rewards points

If you receive rewards points via a credit card and apply it to your balance, you’ve reduced your liability, but something still needs to be credited. Since everything should be accounted for in your records, you may want to simply call it miscellaneous income or other income.

If your rewards points take care of 10% of your bill and you don’t account for it somewhere, it will look like you increased your gross margin by 10%. That’s why you should account for everything and keep your expenses what they are.

Rebates

Rebates that you offer to customers can also be tricky because money is taken off of a regularly priced service or product. The best way to account for a rebate is to input the full amount of the product or service as credit, enter the rebate as debit, and then record the invoice, cash, or check as debit once the customer pays.

Assets and fixed assets

When you buy things like furniture or a computer, it should be labeled as an asset. If you can walk away from a business, take it with you, and sell that item to someone else, it is a fixed asset.

Business expenses

For a business expense, it must be ordinary and necessary, according to the IRS. If you buy a new suit for a work function, that’s a personal expense because you can wear the suit to things outside of work. If you have to buy a uniform that is specifically tailored to you and specifically for the purposes of your job, like a firefighter’s uniform, then it can be a business expense. If you get a shirt embroidered with a company logo, you can deduct the embroidery as a business expense only.

These are just a few of the things that may not easily fit in a box when you’re tracking finances, but there are certainly other unique situations that can occur. If you need help with determining the best way to track things for your business, give us a call.

Leave a Reply

Your email address will not be published. Required fields are marked *