CA Final Download the best Free CA FINAL android app for cracking your exam! Download Now

Books of accounts for freelancers

Books of accounts for freelancers

How should freelancers account for their income — when it is due or when it is actually received?

There are two types of accounting methods –

  • Accrual Basis of Accounting (also called Mercantile Basis)
  • Cash Basis of Accounting
Accrual Basis of AccountingCash Basis of Accounting
Income is accounted or booked when the right to receive arisesIncome is booked when it is actually received
Expenses are accounted or booked when the obligation to pay arisesExpenses are booked when they are actually paid
Tax liability arises when income is booked – tax may become payable when income may not have been receivedTax liability arises in the year income is received – so it makes you pay tax only when income is in your hands.
Approach can be followed for all heads of Income, compulsorily for Heads of Income of Salaries, House Property and Capital Gains.Only allowed for Profits and Gains from Business and Profession and Income from Other Sources.
For e.g., you raise an invoice on your client on 2-Feb but receive the payment on 4-Apr, revenue would be booked in your accounts basis when invoice is raised to the client and the fact that milestones are completed as required.In this same example, revenue would be accounted for only on 4th April (which will be the tax year next to the year in which invoice was raised or work got completed) when payment is received.
For Example – Your mobile bill dated 15th February to 15th March has been received. This bill will be captured as an expense in the month of March for accounting purposes – though you may or may not pay this until 31st March (you may actually pay in the next tax year). Note that on an estimated basis your mobile cost for remaining 15 days of March may also be accrued using a reasonable basis when your books of accounts are closed on 31st March for tax purposes.For Example – Your mobile bill dated 15th February to 15th March has been received and this bill will be booked as an expense in the month of March when you pay it before the 31st March (therefore gets booked in the same tax year). If you decide to pay it in April it will get booked as an expense in the next tax year (though the expense or mobile usage pertains to the previous tax year).

Note that the accounting method you choose will have to be followed for all clients, all revenues as well all expenses.

Books of accounts for freelancers

CAKARt

CAKART

At CAKART www.cakart.in you will get everything that you need to be successful in your CA CS CMA exam – India’s best faculty video classes (online or in pen drive) most popular books of best authors (ebooks hard copies) best scanners and all exam related information and notifications.Visit www.cakart.in and chat with our counsellors any time. We are happy to help you make successful in your exams.

.

www.cakart.in.

Click Here to download FREE CA CS CMA Text Books.

Leave a comment

Your email address will not be published. Required fields are marked *