What is Off the Books?

Off the books refers to any cash payment or receipt that is not recorded in a firm’s accounting records. This is typically done in order to avoid paying income taxes on cash receipts or use taxes or payroll taxes on payments made. Off the books transactions are especially common when an employer pays undocumented immigrant workers, who could not otherwise work for the firm. This approach is also used when engaged in illegal transactions. Off the books transactions are most common in a grey economy, which includes any economic activity that is legal, but which is unrecorded and unregulated.

Example of an Off the Books Transaction

A small restaurant owner hires a part-time cook and pays them in cash, without documenting the transaction in their payroll system or reporting it to tax authorities. This means no taxes are withheld, no employment records are created, and the payment is not declared as an expense on the restaurant's financial statements.