How to Create a Profit & Loss Statement for Bankruptcy Court
Self employed people who are not accountants or professional bookkeepers can create an easy profit & loss statement to submit to the bankruptcy court. Here is how it is done -
Six Months is Through The End of the Previous Month!The bankruptcy "means test" requires that you submit a report showing income covering the past 6 months. Because few people keep records on a daily baisis, in bankruptcy court, the last day of the prior month is the last day of information you need to provide.
Income is income - not loans, gifts, or money from any other source!When preparing a list of your income for a profit & loss, an obvious solution is to look at your bank records. Sometimes it isn't so easy to remember that some of the money going into your bank account was money from a loan, a gift, a transfer from savings, or income that is being counted separately. Only count money you receive as BUSINESS income in your profit & loss
Double dipping is a big problem!Some expenses are only business expenses. And taking a business expense is part of what a profit & loss is about - your income and your expenses - FOR THE BUSINESS. But you can't take an expense for the business and take the same expense as a personal expense. That's called "double dipping." For example, many home based businesses require an internet connection. If you deduct the internet service as a business expense, it is a lie to deduct the same expense as a personal expense. Many expenses of a business are not "all business." Your vehicle expense is a good example. If you use your vehicle half of the time in your business and the other half for personal use, take the pro rata amount as a business expense on your profit & loss and take the remaining portion of the expense as a personal expense on Schedule J.
Bankruptcy requirements on a Profit & Loss are not the same as IRS requirements!The IRS does not allow you to take some expenses as deductions on your tax return. For example, the cost of a major purchase is considered a capital expense and must be depreciated, and not deducted. In Bankruptcy court, you can't take any expense for depreciation because it isn't a current cash expense. In Bankruptcy court, you also can't take an expense for a home office either. The reason is that you are already paying this expense and you wouldn't be paying any less if you didn't run a business out of your spare room or garage. In bankruptcy, you can only deduct expenses you actually have paid when you actually make the payment. And you can only deduct expenses for things you will use today or in the near future.