Tracking Revenue/Expenses In Light Volume Transactions

[John Gregory]

I buy a few cars each year, pay to have them improved, and resell them. The
infrequency of this doesn't force the classification of it being a business,
just an investment. Everything is on a cash accounting basis but I'm not
sure I see how an accrual method would impact what I have to report for the
IRS. I could use a little advice on setting up the proper accounts in my
accounting software. I'd like to begin using more business features of
Quicken 2005 Premier H&B.

Presently, I have one income account for Car Income (CI) and one for Car
Expenses (CE). Let's assume I buy a car in November '05. I record the
expense in CE and all subsequent expenses related to that car as well.
Assume further
that the car is ready to sell in Jan '06 and has gathered a few more
expenses in '06. I need to have all those expenses impact the tax account at
the time of sale, not as there hit my checking accounts.

One thought is to create an asset account; Cars In Process (CIP). All
expenses flow to this account then when a car is sold, CIP gets credited and
Car Sales (CS) gets debited. The full revenue from the sale of the car goes
to CS as a credit and the net is my profit(loss) to report. CS gets the tax
link. in the Quicken software.

Does this sound right?

 

[Paul]

I buy a few cars each year, pay to have them improved, and resell them. The
infrequency of this doesn't force the classification of it being a
business, just an investment. Everything is on a cash accounting basis but
I'm not

It shouldn't be. The cars you still own as of year end should be inventory,
as well as the "fixing up" costs to each car - part of your inventory.

sure I see how an accrual method would impact what I have to report for
the IRS. I could use a little advice on setting up the proper accounts in
my accounting software. I'd like to begin using more business features of
Quicken 2005 Premier H&B.

Presently, I have one income account for Car Income (CI) and one for Car
Expenses (CE). Let's assume I buy a car in November '05. I record the
expense in CE and all subsequent expenses related to that car as well.
Assume further
that the car is ready to sell in Jan '06 and has gathered a few more
expenses in '06. I need to have all those expenses impact the tax account
at the time of sale, not as there hit my checking accounts.

One thought is to create an asset account; Cars In Process (CIP). All
expenses flow to this account then when a car is sold, CIP gets credited
and Car Sales (CS) gets debited. The full revenue from the sale of the car
goes
to CS as a credit and the net is my profit(loss) to report. CS gets the
tax link. in the Quicken software.

Does this sound right?

That'll work.


You'll also have operating expenses, such as advertising, office and the
like to account for.

 

[John Gregory]

Thanks for the help, Paul. I've been using Quicken for years but never had a
"business activity" of this nature. I was concerned that by making the
change in the Quicken settings for reports to operate on an accrual rather
than the default cash basis they're set at would cause some unexpected
change in my accounts. That appears irrational now. The only change to
expect is in how the program reports these numbers as they flow to the tax
accounts... I think. Is this right?

Regarding those operating expenses that get split between two years... I'm
not sure how to hand them. The same way? That can't be right as I've got it
laid out now 'cause the asset account as you said is really only
"inventory". I need something to hold those other operating expenses that
are incurred in one year but not recouped until the following when the car
is sold.

Suggestion?

 

[Paul]

Regarding those operating expenses that get split between two years... I'm
not sure how to hand them. The same way? That can't be right as I've got
it laid out now 'cause the asset account as you said is really only
"inventory". I need something to hold those other operating expenses that
are incurred in one year but not recouped until the following when the car
is sold.

Basically if it's not tied to a specific car, then it's an operating expense
that gets expensed in the year paid. So while you aren't on a cash basis,
and not on an accrual basis, you are on a blended or modified accrual basis.
No one cares that you deduct the utility bill paid in January even though
part of the utilities were incurred in December. They will care that you
buy a $4500 car for resale in December and not sell it till March. That's
inventory.