Is there something like constructive payment for cash basis businesses?

General
1

I have a small business on a cash basis. Tomorrow, 12/31, I’m planning to make a $1500 payment using a paper check.

I know about constructive receipt (like when someone is considered to have received money), but I’m wondering if there’s a similar idea for payments. My vendor might not deposit the check until 2025, so my bank won’t process it until then. Does this mean it’s a 2025 expense, or can it be considered paid in 2024 since I gave them the check this year?

The purchase is mostly equipment and components. My business is an S-corp, and I’ll likely be in the 12% tax bracket for 2024. I handle my own bookkeeping, but I have a tax professional for filing.

2

If you date the check and send it in 2024, it’s a 2024 expense, even if it doesn’t clear the bank until 2025.

This applies if the product or service is received in 2024, or if equipment is put into use that year.

3

@Adi
Thanks for explaining. Most of the purchase will be in use this year, but I might have to pick up part of it in 2025.

Is this true whether I’m on cash or accrual basis? Should I adjust my books manually for this?

4

@Valentine
You should record the transaction on the date you write the check, not when it clears the bank.

5

@Valentine
If you’re paying with a check or credit card, there’s no need for a journal entry. Since you’re on a cash basis, it’s straightforward.

What exactly are you buying? If it’s something you won’t receive until 2025, that could change things.

6

@Adi
Thanks for clarifying!

> What exactly are you buying? If it’s something you won’t receive until 2025, that could change things.

I’m buying some workbenches, test equipment, and components from a client downsizing their operations. Most of it will be picked up this year, but a small part (worth about $200) will be picked up next year.

7

@Valentine
Ah, your books being based on bank imports might be the issue. Transactions should be recorded when the check is sent, not when it clears.

Bank imports are helpful for reconciling, but relying on them as your main records can cause problems. You might miss errors or delays. I’ve caught mistakes like extra charges that I wouldn’t have noticed otherwise.

Alright, stepping off my soapbox now. :blush:

8

@ZAC
Got it. I’ll start recording transactions as they happen, not waiting for the bank data.

And no, stay on your soapbox! This is useful info for someone like me.

9

@Valentine
I haven’t used Wave personally, but most bookkeeping tools let you enter transactions directly as bank activity. This way, when you import data, it matches up and avoids duplicates.

10

Clare said:
@Valentine
I haven’t used Wave personally, but most bookkeeping tools let you enter transactions directly as bank activity. This way, when you import data, it matches up and avoids duplicates.

Just checked, and yes, Wave has that feature. Thanks for pointing it out!

11

@Valentine
Just keep it simple. Write the check, send it, and you’re done.

12

If I write a rent check for my business today and mail it, I count it as this year’s expense. It doesn’t matter when the landlord deposits it.

13

Not sure what you’re asking here.

If you write a check, get your items, and they’re ready to use, it’s an expense. It doesn’t matter if the check hasn’t cleared yet. The items are either inventory, supplies, or equipment to be depreciated.