A lot of us are tired of looking at our income statements.
Even when business is “about the same” from month to month, our income statements show wild, roller coaster results. Profits up one month and down the next with no obvious reasons to explain the differences. If that sounds like you, a likely explanation is that you have a matching problem.
Matching is the process of recording income in your books in the same period as the expenses incurred in earning it. To show you what I mean, let’s say you expense material or pay labor for a job in one month but don’t invoice your customer until next month. The first month would look bad because you incurred expense with no revenue. The next month would look good because you showed revenue with no expense.
On the flip side, suppose you get a deposit on a job and record it as income this month without spending a penny on material or labor until next month. The first month would look good and the next month would look bad. Those are matching problems. Multiply the problem by any number of jobs or sales, each at a different stage of payment and expense, and you can see why your income statements don’t make sense.
You have to get matching right because your income statement is a critically important report, not only for your banker and the IRS, but also for you to use to make management decisions (I wrote a book to show you how to do that).
Matching may sound complicated, but it doesn’t have to be first, because your bookkeeper or accountant, not you, should do the matching and second because I have some simple procedures you can follow once per month to get matching right.
If you’re suffering from roller coaster profit, talk with your accountant or email me. I will send you detailed instructions showing how to correct matching errors using well-tested techniques that work but don't require a degree in accounting.
