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Tracking Revenue/Expenses In Light Volume Transactions

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?

Reply to
John Gregory
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"John Gregory" wrote

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.

That'll work.

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

Reply to
Paul

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.

Reply to
John Gregory

"John Gregory" wrote

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.

Reply to
Paul

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