In the Simpliest Terms…….CASH BASIS REVENUE means you declare it when you RECEIVE the money.ACCRUAL BASIS REVENUE means you declare it when you EARN the money (usually that is when the invoice is generated whether you receive a portion of the money or none at all at the time the invoice is generated). When you subsequently receive payment, it is not taxed. The accounting entry upon receipt of the money is to reduce the Account Receivable. The revenue was declared when the invoice was generated.
CASH BASIS EXPENSE means you expense it when you PAY it.
ACCRUAL BASIS EXPENSE means you expense it when you OWE it, regardless of when you pay for it. The accounting entry is to post the payment to the liability. Paying a liability when on an accrual basis does NOT generate an expense. The expense was deducted when it was accrued (shown as a liability).
So, that means ..
If you are on cash basis, and you never recd payment, you have no write off because you only declare it when you receive it.. never received it, never declared it, no write off.
If you are on accrual basis, then you declared the revenue when the invoice was generated. NOW, you can write off a bad debt expense.
This is an area of confusion for many taxpayers, especially since Sales Tax (at least in Florida) has to be reported on an ACCRUAL BASIS even if for IRS purposes the taxpayer is on a CASH BASIS. If you need any more help with this, contact us www.USATaxHelp.com