Getting Good Optics With Cash Accounting
Cash Accounting is a fact for some businesses, but it produces sub-optimal optics
For instance, some business owners may notice that graphs and trends elicit some "lumpiness" as a result of delayed (quarterly) paying out of business-related taxes and so on. With accrual accounting this can be addressed smoothly, but cash accounting will produce strong rhythmic swings in the data.
Aside from reworking the books altogether, there is one tip within CFO Scoreboard that can help control for some of this lumpiness: reclassify the tax accounts as "Owner's Expenses" and then use the "Below the Line" option to remove those figures from the normal flow of CFOS reporting. To do this:
- Click on the owner's or helper's name in the top-right corner and select Settings >> Companies >> [Company Name] >> Actions Menu: Classify Accounts
- Scroll down and find the relevant tax accounts in the income statement that are prone to trailing 3 month swings. Next to each, check the box for Contains Owner's Expenses? Repeat this for each account.
- Hit Save at the bottom of the screen.
- Navigate back to the Settings >> Companies area and select Actions: Edit Company Settings.
- On Show Owner's Expense, select Below the Line, and Save your changes.
This is not an airtight fix, but it will remove those selected accounts from many of the most important metrics on the Reports page, and allow for better quality insights to be gleaned.