extended profit.

The first question is are you on cash or accrual basis? If you are on cash basis, do you want to have different book and tax values? Under the cash method of accounting revenue is recorded when payment is received regardless of when service is rendered. So if you were to receive payment in 2009, you would record income in 2009. If you were to receive payment at the end of the contract, you would record the income in 2011. If you are on accrual basis the accounting is much more complicated and I hope you wouldn't be in an online forum trying to learn the process. The entry would be to deposit the funds into the bank account and offset with a liability account for customer prepayments. Each month you would make an adjusting entry to record that months revenue and reduce the liability account. This is simple if everyone pays all at one time. But if you have payments scattered throughout the year it can become quite cumbersome. You would follow the same process if you want to have different book and tax return income. For the tax return, the preparer needs to back out the liability and include it into income.

Me personally, I make an adjusting entry at year end to capture the income and am done with it. Most small company bookkeepers aren't capable of keeping accrual books and cash basis tax returns, it is just to complicated and time consuming.

Marc Barnes

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