Jack Falvey's Investor Education Briefs: Accounting tricks lead to troubleBy JACK FALVEY
April 15. 2018 10:01PM
How you count beans is not as important as having beans to count. Not to minimize those who earn their living in black and red, but understand their limitations. Before they can do their magic on a profit and loss statement, they first must have a top line to work with. That is labeled sales, income, cash in, or whatever you personally call the checks customers send you for your goods and services.
Counting sales before they happen is not only wishful thinking, it can lead to time away from home as a guest of government. Booking revenue is keeping score, and that must be done by the book and by the rules. That means all of it, all the time, and on time.
Taking expenses against income, which reduces taxable income, is right up there with the leaders in things done to make things come out better than they are. Playing between the lines is required. Going over lines is not allowed.
One set of books is all that is allowed. Trying to keep two sets of books is not only time consuming and illegal, it can also lead to the aforementioned involuntary time away from home. Playing it straight is the only way to go.
Financial management in business has its place. Short-duration accounts receivable matched with reasonably aged accounts payable produces usable cash flow. Seasonal promotions at discounts can add to sales if not overdone. All kinds of business strategies can be done legally and ethically. Knowing the rules and operating well within accepted practice is best.
Setting up your personal financial plan by the book is the only way to go. There is no reason to bend rules if you play everything straight from beginning to end. Take deductions and depreciation as allowed; age wealth increases to take advantage of capital gains rates; do all that heaven will allow, but no more. Accounting should not be considered an art form.
Jack Falvey is a frequent contributor to the Union Leader, Barron’s and The Wall Street Journal. He can be contacted at Jack@Falvey.org.