New Business Direction LLC
As the year wraps up, it’s time to start preparing your IRS 1099 forms. As a business owner, filing 1099s correctly and on time is a critical part of year-end compliance for your company. Here’s what you need to know to navigate the requirements for Forms 1099-NEC, 1099-MISC, and 1099-K this filing season.
Form 1099-NEC
Form 1099-NEC (Nonemployee Compensation) is used to report payments of $600 or more made to nonemployees such as independent contractors, freelancers, and vendors.
Who needs a 1099-NEC?
You’ll need to file Form 1099-NEC for any contractor or service provider, including attorneys, to whom you paid $600 or more in 2024, unless the service provider is a corporation. An LLC is not necessarily a corporation. Be sure to collect a Form W-9 from each service provider, regardless of their entity structure, to ensure you have their tax information. You are required to have a W-9 on file for all service providers.
What’s the filing deadline for 1099-NECs in 2025?
- Recipient copies must be sent by January 31, 2025.
- IRS filing must also be submitted by January 31, 2025.
Here are some helpful links for 1099-NECs:
Form 1099-MISC
Form 1099-MISC is used to report miscellaneous income such as rent, prizes and awards, and other types of payments not reported on Form 1099-NEC.
Who needs a 1099-MISC?
File Form 1099-MISC if you’ve paid:
- $600 or more in rent, prizes, or awards.
- Royalties of $10 or more.
What’s the filing deadline for 1099-MISC forms in 2025?
- Recipient copies must be sent by January 31, 2025.
- IRS filing deadlines:
- Paper filing: February 28, 2025.
- Electronic filing: March 31, 2025.
Here are some helpful links for 1099-MISC Forms:
Form 1099-K
Form 1099-K is used to report payment transactions made through third-party settlement organizations like PayPal, Venmo, or Square. For tax year 2024, the IRS requires a Form 1099-K to be issued if:
- Gross payments exceed $600, regardless of the number of transactions.
Who issues Form 1099-K?
Third-party settlement organizations are responsible for filing Form 1099-K and sending copies to payees. However, ensure you cross-check your records with any 1099-K forms received to verify reported amounts.
What’s the filing deadline for Form 1099-K?
- Recipient copies must be sent by January 31, 2025.
- IRS filing deadlines mirror those for Form 1099-MISC.
Helpful Links for Form 1099-K:
Pro Tips for Smooth 1099 Filing
- Collect W-9s now. Ensure you have accurate information for all contractors and vendors.
- Double-check tax identification numbers (TINs). This prevents filing errors that could result in penalties.
- Use accounting software. Most platforms have tools to simplify 1099 preparation and electronic filing.
- File electronically if possible. E-filing is faster and ensures timely submission to the IRS.
Need Help? We’re Here for You!
We’re happy to guide our customers through the process, from verifying vendor details to ensuring accurate filings. Let us take the stress out of 1099 compliance so you can focus on your business as we head into the new year.
As we prepare to wrap up 2024, there’s no better way to set the stage for a successful new year than by finishing strong. A smooth year-end close not only gives you peace of mind but also sets you up to hit the ground running in 2025.
Here’s a comprehensive checklist to help you organize and streamline your year-end close. And remember, if any of these tasks seem daunting, we’re just an email away to assist!
Financial Tasks
- Catch up on your bookkeeping. If you’ve been putting this off, now’s the time to get your books in order to avoid the rush of tax season.
- Reconcile all bank accounts. Include savings accounts, PayPal, credit cards, and cash equivalents. Review old uncleared checks, void or re-issue, as necessary.
- Review and address unpaid invoices. Collect outstanding invoices from customers and clean up any errors in accounts receivable.
- Write off uncollectible invoices. Prepare your books for a realistic reflection of revenue.
- Record all bills due through year-end. Reconcile your accounts payable and ensure balances are accurate.
Payroll and Contractor Preparations
- Update employee and vendor addresses. Ensure accurate W-2s and 1099s by confirming everyone’s information is up to date.
- Gather W-9s from contractors. This simplifies your 1099 filing process.
- Request proof of workers’ compensation insurance. Avoid extra charges by collecting certificates from applicable contractors.
- Decide on year-end employee bonuses. Remember, these payments are subject to withholding taxes.
- Review PTO balances. Adjust or roll over unused days in your payroll system.
Inventory Management
- Schedule and take inventory. Make necessary adjustments to your books after counting.
- Write off unsellable inventory. If possible, sell scrap inventory or waste to recover costs.
Assets and Liabilities
- Update your fixed assets register. Confirm that you still own all of the assets listed on your depreciation schedule.
- Calculate and record depreciation as needed.
- Adjust loans for interest and principal allocations. (Need help accurately recording business loans? Check out this tutorial from our team.)
- Analyze all balance sheet accounts. Ensure all balances are current and accurate.
Tax Preparation and Strategy
- Plan your deductions. Decide whether to maximize deductions or defer income for optimal tax impact.
- Prepare for tax adjustments. Work with your accountant to ensure all entries and reconciliations are complete.
Recordkeeping and Organization
- Ensure a complete paper trail. Match transactions with receipts, invoices, and other documents.
- Digitize and store records. Scan and securely save important documents like bank statements, payroll reports, and contracts. (If you’re still operating your business using a local server to store your data, we wrote a think piece about why you should consider switching to cloud-based storage)
Strategic Planning for 2025
- Create a revenue and profit plan. Enter your 2025 goals into your accounting system. (Need help determining where your revenue should come from in 2025? Check out our article about three different sources of cashflow. Need to find out if your growth strategy actually optimizes your profits? Check out this tutorial we wrote.)
- Review holiday closures. Share your 2025 holiday schedule with your team.
- Update pricing. Adjust product and service prices if this is your annual review period.
- Review key metrics. Decide which performance indicators will guide your success in 2025.
Celebrate and Reflect
As you complete this checklist, take time to celebrate your accomplishments from 2024. Reflect on what went well and set your sights on an even better 2025. If you need help with any of these tasks, we’re here to make the process easier. Let’s close the year with confidence and start the new one with excitement!
As an accountant, I know that there is no such thing as bad debt on a cash basis tax return.
Accrual basis taxpayers recognize revenue when they invoice for the services and are allowed to write off a bad debt if it is not collected.
Cash basis taxpayers only recognize revenue when they receive the money. If you never receive the money, there is nothing to write off.
Yet, I’ve seen it; I’ve seen a bad debt expense account on a cash basis profit and loss report in QuickBooks. How does that happen? And how does it get reported on your income tax return?
How a Bad Debt Expense Account Gets on a Cash Basis Profit and Loss Report
Bad Debt can wind up on a Cash Basis Profit and Loss Report when you invoice a customer in one tax year and write it off in another. This is just one more reason to clean up your accounts receivable at year-end, before filing your income taxes.
Let’s look at an example –
In a sample QuickBooks Enterprise data file, I have created an invoice dated 12/15/2027 to Heather Campbell for $1,200 for a building permit.
Behind the scenes, the transaction journal debits Accounts Receivable and credits Income.
The accrual basis profit and loss will report this as Construction Income…
…but the cash basis profit and loss will not.
Now, let’s say I write off that invoice in the next tax year using the QuickBooks Enterprise tool –
QuickBooks creates a credit memo for the write-off –
The transaction journal behind the scenes debits Bad Debt Expense and credits Accounts Receivable –
On the accrual basis profit and loss, we see Bad Debt Expense – this is correct – it’s writing off the income that was reported in the prior year.
On the cash basis profit and loss report, we see both Construction Income and Bad Debt Expense – this is also correct – it’s a wash – since it reports the income and writes off the bad debt.
How a Bad Debt Expense Gets Reported on Your Income Tax Return
Now, let’s discuss what’s supposed to happen on your cash basis tax return. Nothing; technically, it’s a wash, as the Bad Debt Expense on a cash basis profit and loss is simply a reduction of revenue. If I were preparing your income tax return*, I would reduce the Construction Income by the Bad Debt Expense and report the net revenue. For more information on this topic, check out this helpful tutorial our team prepared: https://newbusinessdirections.com/how-to-write-off-a-bad-debt-in-quickbooks-3/
*Note: New Business Directions does not prepare income tax returns.
There are a few scenarios that will cause a negative accounts receivable on a cash basis balance sheet in QuickBooks. Let’s focus on the two most common: unapplied payments and timing differences.
Unapplied Payments –
This occurs when a customer has paid you, you’ve received the payment, but you have not applied it to the invoice yet. As pictured below, a simple checkmark next to the invoice will resolve the negative accounts receivable on your balance sheet.
If you look at your accounts receivable aging report, you will see both the invoice and the payment for the customer – one positive, one negative and they wash to zero.
It’s important to clean up your accounts receivable aging summary report and fix unapplied payments by linking them before monthly reports are issued or year-end taxes are filed.
There are no journal entries required to correct this transaction; simply apply the payment to the invoice and re-run your reports.
Timing Differences –
This occurs when a customer has paid you in advance; you’ve received the payment and applied it to an invoice that is dated in the future.
In the image above, you’ll notice that the date of the payment receipt is the day before the date of the invoice. This is an advance payment from the customer on a future invoice resulting in a negative accounts receivable on the balance sheet dated as of the date of the payment. It will not wash to zero on the accounts receivable aging report until the next day–in this case, it will be in the next calendar year.
Please note that you will have a negative accounts receivable on both the cash and the accrual basis balance sheets for this transaction. Below is the transaction detail for the payment dated 12/31/2026 and the invoice dated 1/1/2027, behind the scenes in QuickBooks.
If you find yourself in a situation where you have negative accounts receivable due to a timing difference at a month-end reporting period (or at year-end for tax filing), you will need to make two journal entries – one regular and one reversing, to move the negative accounts receivable to an other current liability account for advanced deposits, as follows:
These are the two most common reasons why you would see a negative accounts receivable on a cash basis balance sheet in QuickBooks.
This holds true for negative accounts payable on a cash basis balance sheet as well and the process to fix/link or adjust is the same.
You may have heard reports over the past couple of years regarding the demise of QuickBooks Desktop.
Actually, if you search the web to purchase QuickBooks Desktop, you’ll be hard-pressed to find it.
Now that we’ve passed the May 31st, 2024 sunset date of the 2021 versions of QuickBooks Desktop – Pro, Premier, Mac and Enterprise Solutions v21, there is no more Intuit support for those 2021 versions and any integrations for connected services such as payroll and merchant services will no longer link.
There is a New Date on the Horizon
Intuit will stop selling new subscriptions of Desktop Pro, Premier and Mac as well as Enhanced Payroll to new US users on September 30, 2024. This is not a sunset or discontinuation; it’s a stop-sell.
If you don’t have a current subscription of the 2024 QuickBooks Desktop Pro, Premier or Mac or Enhanced Payroll on or before July 31, 2024 – you will not be able to purchase it.
Existing customers with 2024 Pro, Premier, Mac or Enhanced Payroll will not be affected and they will still be able to renew their software annually – this is only for new customers. Existing customers will be able to add seats, additional licenses, to their existing licenses.
QuickBooks Enterprise Solutions is Alive and Well
This stop-sell order does not affect QuickBooks Enterprise Solutions. Think of the Enterprise version of QuickBooks as the Pro/Premier software on steroids. It’s the same product, just more robust, with increased capacity and additional features.
Next Steps – What You Need to Do
Confirm that you have the 2024 version of QuickBooks Desktop and that your payment method on file with Intuit is current with the correct card number and expiration date. Do not let your subscription for Desktop Pro, Premier, Mac or Enhanced Payroll lapse.
If you need assistance with the renewal process or upgrading the file from an older version, please reach out.
As a business coach, one of the fundamental lessons I impart to my customers is the vital importance of cash flow management. Cash flow is the lifeblood of any business, and understanding the primary avenues through which cash is generated can make the difference between thriving and merely surviving. There are essentially three ways to generate cash for your business: through operations, financing, and investing. Let’s delve into each of these in more detail.
1. Cash from Operations: Doing What You Do Best
Generating cash from operations is the most sustainable and preferable method for a business. It involves the day-to-day activities that your business engages in to generate revenue. Your operations cash flow is like the engine room of your enterprise, where the core products or services are created, marketed, and sold.
The key business priorities for generating cash from your operations include the following:
- Generating revenue: This includes sales of goods or services. Consistently increasing sales while managing expenses effectively is crucial.
- Managing expenses: Controlling operating expenses ensures that more of your revenue is converted into profit.
- Improving efficiency: Streamlining operations can reduce costs and improve productivity, in turn boosting cash flow.
Prioritizing operational cash flow is vital to a successful business because it indicates a healthy, self-sustaining enterprise. Managing the above priorities while enhancing customer experience, optimizing pricing strategies, and continuously improving product or service quality will drive your operational cash flow.
2. Cash from Financing: Leveraging Debt and Equity
The second avenue of generating cash flow is financing, which involves borrowing money or raising funds from investors. While less ideal than generating cash from operations, financing is sometimes necessary to support growth, manage working capital, or navigate challenging times.
There are two primary types of financing:
- Debt Financing: This includes taking out loans or issuing bonds. While debt must be repaid with interest, it can provide immediate funds for expansion at a critical time for growth (or other needs).
- Equity Financing: Selling shares of your company to investors in exchange for capital. This doesn’t require repayment but does dilute ownership.
Financing can be a double-edged sword; it can provide the necessary capital to seize growth opportunities, but it also comes with risks, such as interest obligations and potential loss of control. A sound financing strategy should balance these risks, ensuring that debt levels remain manageable and that equity is only diluted when it aligns with long-term goals.
2. Cash from Investments: Selling Assets
The third method is generating cash by liquidating investments you’ve made for your business. This strategy can include selling off assets, such as equipment, real estate, or even entire business units that are no longer core to your business strategy.
Below are three critical considerations for your investing activities:
- Asset Management: Regularly review your asset portfolio to identify non-essential or underperforming assets.
- Strategic Sales: Consider selling non-core assets to free up capital, which can be reinvested in higher-return areas of your business.
- Investment Income: Earning returns from financial investments can also contribute to cash flow.
This method can provide a significant influx of cash but should be approached cautiously. It’s essential to ensure that selling assets aligns with your long-term strategic goals and doesn’t undermine your operational capabilities.
Balancing your Cash Flow Sources
Each of these three sources of revenue has its place in a comprehensive cash flow strategy. Remember, cash from operations is most reliable, and wisely leveraging financing can support growth and stability. At the same time, strategic asset sales can optimize resource allocation. All three avenues can help your business grow and remain stable. Strategically integrating these three methods of generating cash could look like this:
- Optimizing your operations to boost cash flow by improving efficiency and controlling costs.
- Seeking financing to invest in new technology to expand your capacity to produce
- Selling outdated equipment to raise additional funds.
As your business coach, my goal is to help you navigate these avenues effectively, ensuring your business can not only survive but thrive in any economic climate. As always, if you have any questions or want to learn more about cash flow management services for your business, please feel free to contact us anytime.
Implementing a new accounting system is no small feat. It requires careful planning, coordination, and commitment from every team member. We’re always excited to help a business with a new accounting infrastructure implementation because we know the positive impact it can have on a business.
We also understand that, as a business owner, transitioning to a new software solution can be both exciting and daunting. You’re taking a giant leap in a positive direction to increase your efficiency, enhance the functionality of your accounting system, and optimize your processes.
But great reward doesn’t come without some risk: you’ve likely already considered employee learning curves, potential technical challenges during the transition period, and how a new implementation could disrupt daily operations. These concerns are valid, and with the right expectations, the journey can be smoother and more rewarding for everyone involved.
Hard Work Ahead: Embracing the Challenge
Let’s be honest: implementing a new accounting system isn’t a walk in the park. It requires time, effort, and resources to ensure a successful transition. From data migration to process reengineering, numerous tasks need to be completed with precision and attention to detail. It’s a journey that will test the resilience and determination of the entire team.
Rowing in the Same Direction: Unity in Purpose
Implementing a new accounting system requires a collective effort from your entire team. Everyone on board must be rowing in the same direction; if you notice team members resisting the change, it’s best to address the issue head-on. Ultimately, the goal is not to make their jobs harder; it’s to improve their workflows and processes in the future by putting in the hard work now. And for your implementation to be as successful and pain-free as possible, every team member must be ready to embrace change, adapt to new processes, and support one another throughout the transition. With a company culture of collaboration and communication, we can overcome any challenges that come our way while implementing your new accounting infrastructure.
Charting the Course: Milestones and Deadlines
Like any major project, implementing a new accounting system involves setting milestones and deadlines to keep the team on track. These milestones serve as checkpoints to assess progress and make necessary adjustments along the way. Whether we’re completing data migration or conducting one-on-one training with your team, each milestone brings us one step closer to our ultimate goal: to give you a beautiful accounting infrastructure that meets your current business needs and still leaves room for growth.
Bringing It All Together: The “Go Live” Date
The “go live” date is the culmination of your months of hard work and preparation. It’s the moment when the new accounting system officially replaces the old one, and all systems are a go! Reaching this milestone involves coordinating a multitude of moving parts, from finalizing configurations to conducting system testing. Everyone needs to be aligned and working together towards this common goal.
Embracing Differences
Transitioning to a new accounting system inevitably brings about comparisons between the old and the new. From software functionalities to workflow processes, there will be changes that require adjustment and adaptation. It’s important to acknowledge these differences and approach them with an open mind and a willingness to learn. We wouldn’t be guiding you through an implementation if we didn’t already understand your business’s unique needs and believe we were charting the best path forward for you. With the right mindset, we can turn the differences between your former and future accounting systems into opportunities for growth and improvement.
Implementing a new accounting system is a significant undertaking that requires dedication, perseverance, and teamwork. By setting clear expectations and rallying the team around a common goal, we can confidently navigate this journey and achieve success. You can learn more about our implementation services here.
I’ll never forget my first tax season at a local CPA firm, one customer meeting in particular. We were sitting across the table from a nice young couple expecting their first child. They had started a small construction company that year and did quite well. The purpose of our meeting was to deliver the tax return, tell them the balance due for taxes, and answer any questions they might have about the Federal and state tax returns and future estimated tax payments.
When I shared with them that they owed just shy of $10,000 in income taxes, the young lady burst out in tears! They didn’t have the money. They had profits–but no cash. No one had ever explained the difference to them, and they were not expecting a balance due of that magnitude.
This meeting changed their lives and the course of my career. I never again wanted to sit across the table to deliver unexpected news to a bright-eyed entrepreneur and his expecting wife.
Therein began my career of teaching small business owners the difference between profits and cash, along with many other nuances of business ownership that no one ever tells you (including the fact that approximately 40% of your profits will go to pay income taxes). It’s a harsh reality, and knowledge is power. These outflows of cash can be planned when you have advanced notice. This type of planning is usually called tax planning, business planning, revenue planning, and/or profit planning. But knowing the difference between profit and cash is a good place to start — let’s dive in.
Here is the short and sweet on the difference between profits and cash. Profit is revenue minus expenses. Cash is money in minus money out. There is a fancy, seldom understood financial report called a Statement of Cash Flows that reconciles your profit to your cash, and is part of a comprehensive financial statement package which will also include your Balance Sheet and Profit and Loss Statements.
Most small business owners only look at the profit and loss, pay little (if any) attention to the balance sheet, and have never heard of the Statement of Cash Flows.
However, I would argue that the Statement of Cash Flows is the single most important financial report. It will tell you how much profit you made, where the money went, and what’s left of your profit.
There are certain things that you spend money on that are not tax deductible: some are not deductible at all, and some not immediately. They use cash, deplete your bank account, and do not reduce profits.
Let’s discuss a few common examples:
Equipment – you buy a new piece of equipment for your business. This might look like a walk-in cooler for a restaurant, a forklift for a warehouse, a work van for a construction company, a new stitcher for a manufacturing facility, or a company truck for the business owner. These items are Assets with a useful life extending beyond a one-year operating cycle and are reported on the balance sheet. They affect cash and do not affect profit until they are depreciated. When you make an investment in a piece of equipment like this, it is not immediately deductible. You’re out the cash and do not have an expense deduction–yet.
Loan Payments – Let’s say you buy that forklift and take a loan for it because the interest rate is better than what you’re making on your savings, or you don’t actually have the cash to pay for it outright. While the interest paid on the loan will be tax deductible, the loan payments themselves are not. The principal portion of the loan payment reduces the loan Liability account on the balance sheet. It affects cash, but never profits.
It is important to reconcile profits to cash, to find out where the money came from and where the money went. You never want to be caught short at the end of the year without enough cash to pay the taxes on the profits generated by your business. And hey, those federal income taxes you pay? Those are not tax deductible either.
While New Business Directions doesn’t prepare tax returns, our clients can benefit from the types of planning we mentioned above. Having a CPA in your corner throughout the year can make or break you at tax time–we can consult with you on the best time to make a capital expenditure decision, keep you informed about the speed at which cash is entering and leaving your business, and more. If you’d like to discuss cash vs. profit within your company, complete our intake form to get started.
When building a team, classifying your workforce correctly is vital to your business’s success and legal compliance. Employees and independent contractors are not interchangeable terms, and it’s important that you can distinguish between the two in your organization.
While it may seem like a simple solution to classify members of your workforce as independent contractors, there are actually very specific criteria that determine whether a worker can be classified as an independent contractor. Workforce classification is not a grey area – the IRS has an independent contractor test, as do many states, and they do not always follow the same criteria. In this article, we’ll discuss the differences between an employee and an independent contractor so you can ensure you’re operating your business correctly.
When is a worker considered an Employee?
Employees work under your direct control – they follow your schedule, use your company tools, and often receive benefits such as training, healthcare and/or retirement. You withhold taxes from their paychecks and contribute your share of payroll and unemployment taxes, you pay workers’ compensation insurance on the wages, and you file quarterly and annual returns with the IRS, Social Security Administration, and state agencies.
When is a worker considered an Independent Contractor?
Independent contractors maintain autonomy – they work for themselves and have their own company, they set their own schedule, they provide their own tools, they have their own general and/or professional liability insurance, and they handle their own income and/or self-employment taxes and pay their own expenses. They are typically hired for a specific project and under contract and take the risk of whether or not they make a profit.
What can happen if a worker is misclassified as an Independent Contractor?
If the IRS determines that you have been misclassifying an employee as an independent contractor, the penalty can equal 20% of the wages paid; 100% of the employee FICA taxes that should have been withheld; 100% of the employer FICA taxes that should have been paid; 20-75% of the underpayment of taxes; 25% of the late payment of taxes; and a per-worker fine.
In addition, there are Department of Labor and state penalties for misclassifying employees as contractors, which can equal any overtime that should have been paid. Plus, courts can award an additional 100% of unpaid overtime payments.
Penalties can also include severe criminal sanctions, including felony charges.
There’s a lot at stake when it comes to classifying your workforce correctly, and cutting corners here can be a costly decision for your business. Proper classification safeguards your company from legal issues and ensures compliance with labor laws, workers’ compensation laws, and Federal and state laws. If you have questions about the classification of your workforce or need support with payroll in your business, reach out to our team at newbusinessdirections.com/contact.
While you’ve likely heard of the term “goodwill,” are you aware of its application in accounting? Goodwill is an account on the balance sheet of certain businesses, and it falls into the category of assets. Specifically, it’s what’s known as an intangible asset, or one that isn’t physical. Examples of other intangible assets are copyrights, patents, and trademarks.
Understanding Goodwill in Accounting
Goodwill arises when one company purchases another. When a company pays more for the company that it is acquiring, the difference is booked as goodwill. Goodwill represents the extra value that the acquisition provides for the purchasing company.
When the purchase happens, the assets and liabilities of the acquired company are taken over by the purchasing company. They are recorded on the purchasing company’s books at their fair value. The balancing entry between the fair value of the assets and liabilities purchased and the purchase price is booked to the goodwill account.
What could lead a company to pay more for another company? Things that are not on the balance sheet but are valued could include a solid customer base, great employees, brand reputation, the company name and what it means, technology owned by the company, and a great reputation for customer service.
Normally, an intangible asset like goodwill would be amortized, but it is not. Amortization is when a portion of the asset is expensed each year. A patent, for example, is amortized over its useful life, not to exceed 20 years. If it sounds similar to depreciation, that’s because it is; some physical assets are depreciated, while some intangible assets are amortized.
Goodwill Impairment
Before 2001, goodwill was amortized for up to 40 years, but the accounting rules have changed to something less arbitrary. Now, goodwill must be checked each year for “impairment.”
Goodwill impairment happens when the value of the acquisition declines after it has been purchased. One famous example of impairment write-down occurred right after this new accounting rule was implemented. In 2002, $54.2 billion in impairment costs was reported for the AOL Time Warner, Inc. merger.
More recently, in 2020, a few of the largest impairment write-downs included companies, such as Baker Hughes, Berkshire Hathaway, and ATT, due to the latter’s acquisition of DirecTV in earlier years. In 2022, impairment write-downs included Teladoc Health and Comcast. Covid-19 was in part responsible for a large number of impairment write-downs in recent years.
If impairment is required to be booked, the journal entry will look like this:
Debit Impairment Expense (increases expenses and therefore reduces profits)
Credit Goodwill (reduces the asset amount)
If your company has acquired other companies and you have a goodwill account on your balance sheet, you can work with your accountant to determine how to check for impairment and if you are required to correct your books. While this process can be complex and time-consuming, it is crucial in ensuring that the financial statements are a true reflection of the company’s financial position. Goodwill is an important accounting concept that can have a significant impact on the financial statements of a business.
