Hi Ray - Just curious what other systems you have worked with that provide both cash and accrual-basis reporting? Have never seen one, but my experience is with systems that can be used in my industry of GovCon accounting, where QB requires add-on systems to work best.
Hi Ray - Not clear how system could provide AP & AR Aging for same period but NOT show those account balances on balance sheet for the same period end date, since those reports are the supporting detail for the AP & AR balances shown on balance sheet. Please explain.
Thanks jhaynes, totally agree. For sure must track AR for who owes you money to get paid vs. wait to see who pays whenever and must also track AP for who you owe money to, although vendors will send invoices but when you receive those, want to make sure amount is correct. Otherwise you are just flying blind and hoping money comes in before you must pay it out.
Other packages I work with are
1. Sage50 formally Peachtree but that package you have to decide cash or accrual when company is set up. You can’t toggle. However, it still keeps a subledger for AR & AP.
2. AccountEdge formally MYOB. you can choose cash basis just for the balance sheet & income statement only. It dies keep subledger for AR & AP.
In a custom report you can exclude certain accounts but you run the risk of the balance sheet not balancing.
Ah, have a client on Sage 50, actually converting them to Unanet right now since Sage is not best for our industry either. Makes sense you could choose cash or accrual, but not toggle.
Not sure how you could have AP or AR ledger on Cash-basis though, since AP and AR are both "accrual accounts" that do not exist on cash-basis. Can you explain how that works?
For example, on vendor invoice payment:
1) Input Invoice
CR Accrued AP
2) Pay Invoice:
DR Accrued AP
Yes, exactly. If you have amounts in AP and AR (accrual) accounts, and exclude those from Balance Sheet, your BS would definitely not balance.
I have always made it a practice not to discuss other accounting packages on discussion boards that don’t pertain to the product it is intended for.
When making the sale or entering a bill it only will post in the subledger to track AR or AP. When paid it posts to the appropriate accounts & never touches AR or the AP accounts.
Ray - I agree on the systems discussed here. Sounds like you are doing a mix of cash/accrual. Probably not good for non-accountants to try to keep straight, just my opinion on that here.
That can cause clients in my industry to flunk DCAA audits to not be awarded Govt contracts.
Thanks for sharing.
There isn’t an easy way to use the hybrid method. It use to be if had inventory, that had to be on the accrual method. But now that law has changed. There are specific rules in the IRS code ranging from 1 million in sales to 10 million in sales on whether you need to cash or accrual for inventory.
it takes journal entries to report non inventory sales on the cash method. All accounting systems are set up to be either cash or accrual. There is no in between.
below is an article not from the IRS but it is interesting reading.
That's a good read and fairly difficult to wrap your head around. Lots of qualifying "ifs." Sounds like those starting off should stick with one or the other...
They should discuss with their accountant on whether they should be cash or accrual.
its easy if they don’t do inventory & just sell a service.
Has any of the new tax law changed the outlook on the folks in this thread? I use the method most suited for my client. The bookkeepers opinion is not always the best tax option. Some great reasons to be cash basis for your inventory clients.
It really depends on the state. Some states want sales tax reported on an accrual basis & others on a cash basis. You have to check with the particular state.
Probably will. However, when to transfer the items in to a state that charges tax, you owe a use tax on those items since no tax has been paid in them.
Even if the item were "given as a gift" between the drop shipper and recipient (just playing devil's advocate... pay your taxes folks )?
It is my understanding that there are guidelines. That once your company brings in 3million for 3 years (don't quote me on the time, the fact is the IRS still has its demands. My personal opinion is Accrual is a much clearer picture of the business. Take for instance annual payments, those are large numbers that are not a fair comparison.