Am I Stupid To Be Reporting My Cash Sales?

We can feel pretty dumb when we hear other people talk about how they do their income tax reporting, bragging about how they didn’t have to pay any taxes or about how they only reported their "over the table" income. If we try to do things the right way, we can find ourselves in conflict. Now, add to that the difficulty of knowing just HOW to report all the cash and barter transactions inherent in our craft work and we are really in a bind!

I believe most Americans would really like to sleep at night knowing their taxes are reported correctly and they don’t really have to worry about the IRS. Even the scofflaw might be inclined to report everything, if only it were easy to do. That’s it. If we can just figure out easy methods to track and report the cash and barter transactions, we could report it all... the expenses, as well. Then, too, we could rely on our tax return to be a good representation of our business results. I can help by offering a few tips and methods I have found work easily and efficiently.

I’ll start at the beginning for any beginners. Would you old pros please be patient? When going to a show or setting up a shop, you’ll need a cash box, the sales tax table, a check endorsement stamper and (best) a receipt book. Put a note in the cash box that says how much cash you started the day with. This is sometimes called the "Bank". When making a sale, it is best to write up a sales slip showing the date, number and description of the items sold, the individual prices, total sale, sales tax, and total price including the tax. You will be able to add up the slips at the end of the day and compare the totals of the "total price" with the increase of money in the cash box. We will be reporting the total sales and sales tax in agreement with the slips, and if there’s a discrepancy with the money collected, we will record the difference as "Cash Over/Short". If the money is short, we get to deduct the difference as a business expense!

Of course, when you are paid in cash you’ll try to make the correct change. When you accept a personal or travelers’ check, be sure to stamp your bank endorsement stamp on the back of the check. Then, if the check is lost or stolen, it can’t be cashed. It can only be deposited to your bank account. (If you’re accepting charge cards, you’ve probably already gotten help with that.) If you need to pay cash for some supplies or travel expenses, please don’t take the money from the cash box. Take the money from your pocket . Trust me for now and I’ll tell you about the OOPS! later.

At the end of the day, you can count up all the money in the cash box and write down the following totals: 1. Starting Cash (The Bank), 2. All Other Cash (Bills and Change) 3. Checks 4. Charges. Then add up the sales slips three times to get the following totals: 1. Total Sales (without tax) 2. Total Sales Tax 3. Total Price (this is often called "Cash Receipts" even though it’s cash and checks!) You will find it helps a lot to use an electronic adding machine with a tape when you do this. They aren’t very expensive any more. You can "proof" your adding, that is, make sure you added right, by seeing if the three totals tally as follows: 1 plus 2 equals 3.

Now, we’re ready to make a deposit and record all this into our recordkeeping system. Follow this carefully and you’ll find I’ve given you permission to KEEP THE CASH!! Make up your deposit slips for the checks and for the charge slips. We will record the deposit and the details of the day’s sales on our "Cash Receipts" spread sheet .

DEPOSIT AMOUNT TOTAL SALES SALES TAX COLLECTED PERSONAL - CASH KEPT CASH OVER/SHORT$$$$$ Let’s do an example where we start the day with $50.00 in cash and end up with the following tally of the cash box: 1. $50.00 Bank 2. $350.50 Other Cash 3. $475.00 Checks 4. $200.00 Charges. When we add up our slips we come up with 1. $1000.00 Total Sales 2. $60.00 Sales Tax 3. $1060.00 Total Price/Cash Receipts.

You’ve probably already noticed that we lost some money today? The additional money we have ($350.50 + $475.00 + $200.00) equals only $1025.50, but we’re supposed to have collected $1060.00. Oops! (That’s not OOPS!) Let’s go ahead and record it all in our spreadsheet:

DEPOSIT AMOUNT TOTAL SALES SALES TAX COLLECTED PERSONAL - CASH KEPT CASH OVER/SHORT$ 675.00$1000.00$ 60.00($350.50)($ 34.50) Deposit equals: Total Sales plus Sales Tax Collected minus Cash Kept plus (or minus) Cash Over/Short.

It works and it’s easy! Now, while we’re at it, let’s see how to record a barter transaction. Let’s say we have agreed with our dentist to swap a hand-woven rug we made (that is usually sold for $500) for $500 off on our dental bill. Since the dental bill is personal, it’s as if we sold her the rug for $500 and then handed her back a check for $500 to put on our account for dental services. How do we record this one?

DEPOSIT AMOUNT TOTAL SALES SALES TAX COLLECTED PERSONAL - CASH KEPT CASH OVER/SHORT$ -0-$ 500.00$ 30.00 ($ 530.00)$ If we were bartering for something that would be a business expense, we would record the "in" the same way. We just need, then, to record the expense even though we didn’t spend "real money" for it. That brings me to the other side of the equation... the business expenses.

Since we’re talking here about those elusive cash and barter transactions, I have to assume you have already set up a recordkeeping system to record your business expenses. Hopefully, you have a separate business checking account by now. You may also have either a one-write system or a manual spreadsheet set up to record all the checks written and to categorize them according to your business expense categories. We’ll use an abbreviated example to record our barter (this time it’s for materials worth $530.00) and our cash out of pocket expenses... There’s the OOPS! While we were at the show, we spent some of our pocket money on business expenses , paying cash. We want to record them as business expenses even though we didn’t write a check for them. We have written down the expenses in our notebook or OOPS! (out-of-pocket expense book).

TRANS-ACTION CHECK AMTOOPS! TOTAL MATER-IALSBUS MEALS TRAVEL OFFICE SUPPLY Barter$ -0-($530.00)$530.00OOPS!$ -0-($145.00)$45.00$75.00$10.00$15.00 If you are familiar with the use of a spreadsheet, you will know that each line needs to add up to the check amount. Since we aren’t writing checks for these expenses, the lines need to add up to $ -0-! We do this by entering an off-setting negative amount for the total of the transaction. Notice I have treated the barter as an OOPS! Transaction.. it’s as if we were paid in cash for the rug and then gave the supplier cash for the materials.