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Established Community Backer ***

Re: Does Your Business Use Cash or Accrual Method Accounting?

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.

Established Community Backer ***

Re: Does Your Business Use Cash or Accrual Method Accounting?

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!

Teri

Established Community Backer ***

Re: Does Your Business Use Cash or Accrual Method Accounting?

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.

Content Leader

Re: Does Your Business Use Cash or Accrual Method Accounting?

@Teri

 

Just a thought, could you not exclude your AP/AR accounts from a customized report?

ProAdvisor

Re: Does Your Business Use Cash or Accrual Method Accounting?

@Teri

 

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.

ProAdvisor

Re: Does Your Business Use Cash or Accrual Method Accounting?

@JamesOng

 

In a custom report you can exclude certain accounts but you run the risk of the balance sheet not balancing.

Established Community Backer ***

Re: Does Your Business Use Cash or Accrual Method Accounting?

H James - Then your Trial Balance would not balance if amounts were excluded.

Established Community Backer ***

Re: Does Your Business Use Cash or Accrual Method Accounting?

@Raywhite28

 

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:

 

Cash Basis:

DR Expense

CR Cash

 

Accrual Basis:

 

1) Input Invoice

DR Expense

CR Accrued AP

 

2) Pay Invoice:

DR Accrued AP

Credit Cash 

 

 

 

 

Established Community Backer ***

Re: Does Your Business Use Cash or Accrual Method Accounting?

Yes, exactly.  If you have amounts in AP and AR (accrual) accounts, and exclude those from Balance Sheet, your BS would definitely not balance. 

ProAdvisor

Re: Does Your Business Use Cash or Accrual Method Accounting?

@Teri

 

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.

Established Community Backer ***

Re: Does Your Business Use Cash or Accrual Method Accounting?

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.

Cheers!

Teri

Content Leader

Re: Does Your Business Use Cash or Accrual Method Accounting?

@Teri@Raywhite28 is an expert at the hybrid method, though it does seem like something experienced bookkeepers should be trying. 

 

@Raywhite28, is there a good way to ease newcomers into the hybrid method? Is there a strict set of principles behind it, or a purpose/account-specific method?

ProAdvisor

Re: Does Your Business Use Cash or Accrual Method Accounting?

@JamesOng

 

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.

 

https://notyourdadscpa.com/can-i-expense-inventory-when-i-purchase-it/

 

 

Content Leader

Re: Does Your Business Use Cash or Accrual Method Accounting?

@Raywhite28,

 

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...

ProAdvisor

Re: Does Your Business Use Cash or Accrual Method Accounting?

@JamesOng

 

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.

Frequent Explorer **

Re: Does Your Business Use Cash or Accrual Method Accounting?

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.

Content Leader

Re: Does Your Business Use Cash or Accrual Method Accounting?

@TandyConsulting,

 

As far as I know, there isn't anything immediate. However, with the upcoming changes to e-commerce sales tax laws, accrual might become the better option for an increasing number of clients who buy and sell online. 

ProAdvisor

Re: Does Your Business Use Cash or Accrual Method Accounting?

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.

Established Community Backer ***

Re: Does Your Business Use Cash or Accrual Method Accounting?

No change for any of my clients since all Govt contractors and 100% accrual basis required.

Content Leader

Re: Does Your Business Use Cash or Accrual Method Accounting?

@Raywhite28

 

Do you think there's a future in dropshipping/pick-up to taxless states? Haha

ProAdvisor

Re: Does Your Business Use Cash or Accrual Method Accounting?

@JamesOng

 

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.

Content Leader

Re: Does Your Business Use Cash or Accrual Method Accounting?

Even if the item were "given as a gift" between the drop shipper and recipient (just playing devil's advocate... pay  your taxes folks Smiley Tongue)? 

ProAdvisor

Re: Does Your Business Use Cash or Accrual Method Accounting?

@JamesOng

 

That gift issue, I'm not going to touch. LOL

Established Member

Re: Does Your Business Use Cash or Accrual Method Accounting?

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.

 

 

Established Community Backer ***

Re: Does Your Business Use Cash or Accrual Method Accounting?

Both cash and accrual accounting methods are meaningful to business owners.