Accounting for "Forgiven Debt"

With the current economic conditions and the growing uncertainty over the financial markets more and more companys may end up in the situation of having to account for 'forgiven' debt.

When your company’s debt is forgiven, you include the forgiven amount in gross income for tax purposes. The exception is cancellation of a debt to the extent that the payment would have been a deduction.

For example: You use a consulting firm from which you obtain service on credit. You are having trouble paying your account, but are neither bankrupt nor insolvent, so the consulting firm forgives part of your invoice. How do you book the cancellation?

The solution depends on your method of accounting:

· If you use the accrual basis, you include cancellation of the debt as income because, under the accrual method, expenses are recognized when incurred, not when paid.

· If you use a cash basis, you do not include the debt cancellation in income because payment for the services would have been a deductible business expense.

These hard times make for some complicated accounting issues. Get the help you need - hire an independent bookkeeper. They can make sense of these issues for you.

These Tough Times

Every day it seems there is a new batch of doom and gloom in the financial sector. Stock market is falling, banks are failing, investment firms are teetering...... The sky is falling.....

Now is the time to make sure that your own finances are in good order. Do you know where your business stands as far as income to debt ratio? How about your personal finances?

You need to lay things out so that you can budget accordingly to get through this stormy weather.

Get your financial data into a software program. Whether it's just your personal finances or your business too. Only good planning will get you through this.

If you need help, consider a freelance bookkeeper to help you get a handle on things.

Freelance Bookkeepers vs. Employees

Freelance bookkeeper services run on average about $50-$70+ an hour. Let's compare this with the cost of hiring an employee. An employee's actual cost is 2 to 2 1/2 times their salary. Let's factor in some of the inevitable expenses that come with hiring an employee.

• Health/Dental/Vision Benefits
• Equipment and Space
• Supplies
• Retirement Plans
• Insurance
• Unemployment
• TAXES (Freelancers are self-employed and pay their own taxes.)
• Overtime Payment

Someone to administer and oversee all of the above. If you calculate the cost of all of the above, plus the actual salary, you can see how expensive it is to hire an employee.

Plus you will only be paying for time actually worked - not a flat 8 hours per day regardless of how much time is spent on actual work.