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I've made the mistake of accrual accounting when not needed before. The current company I own for does cash based accounting, and wow, what a difference. Accru

by gte910h 17y ago

I've made the mistake of accrual accounting when not needed before. The current company I own for does cash based accounting, and wow, what a difference. Accrual is easily 5 times the work for many types of businesses than cash is. You have to touch the books twice for Everything. Things you'd only do as an afterthought in cash you have to make into a careful ordeal. To quote one accountant: Until you can afford a full-time bookkeeper, why are you thinking about doing accrual? (at 5 million revenue you have to swap to accrual or $1 million revenue and hold actual goods in inventory). If you're worried about your ability to do projections, I'm honestly going to say that cash basis is much closer to your actual resources on hand than accrual.

run4yourlives 17y ago
Accrual methods make sense when you don't have a physical product and invoice at regular intervals, especially if you have any type of retroactive invoicing and/or charge any type of interest or are remitting to a third party. Cash methods would be nightmarish in this circumstance.
- gte910h 17y ago
  This pretty much exactly describes a huge portion of the business we do. I've found cash basis very very nice in comparison to accrual for this exact use case. (And was what was recommended by an accountant in particular). Does your accounting software make it unable to track invoices if you're not doing accrual or something? Mine does invoicing, AR, and other accounts just fine.
lubos 17y ago
actually accrual accounting is 5 times easier than cash. perhaps with the tool like quickbooks, this is not so obvious but accrual is CORRECT accounting and every business out there should use it whether you pay your taxes on cash-basis or not. let me explain, when you give customer an invoice, you want to see in your books that this person owes you $1000. on cash-basis you would completely ignore this transaction for accounting purposes until client pays which is non-sense as it could be easy to forget this invoice forever and never receive payment for your products or services. people get confused but cash-basis accounting is not really an accounting, it's just calculation method for your taxes.
- gte910h 17y ago
  Outstanding invoices are quite clearly still shown in my accounting program. They're not counted on income until the event of payment though. The invoicing program even auto-reminds late payers when they're past due. I can generate reports to show my company's AR whenever I want and open to a dashboard of that screen actually Losing track of AR is just poor bookkeeping. It's not a feature of cash bookkeeping. My AP is not as well tracked, that's for certain. Once expenses are paid, that is tracked, for sure, but owed debts/bills/etc aren't. That never was really something that interesting in the accrual based system.

by gte910h 17y ago

run4yourlives 17y ago

Accrual methods make sense when you don't have a physical product and invoice at regular intervals, especially if you have any type of retroactive invoicing and/or charge any type of interest or are remitting to a third party. Cash methods would be nightmarish in this circumstance.

gte910h 17y ago
This pretty much exactly describes a huge portion of the business we do. I've found cash basis very very nice in comparison to accrual for this exact use case. (And was what was recommended by an accountant in particular). Does your accounting software make it unable to track invoices if you're not doing accrual or something? Mine does invoicing, AR, and other accounts just fine.

lubos 17y ago

actually accrual accounting is 5 times easier than cash. perhaps with the tool like quickbooks, this is not so obvious but accrual is CORRECT accounting and every business out there should use it whether you pay your taxes on cash-basis or not. let me explain, when you give customer an invoice, you want to see in your books that this person owes you $1000. on cash-basis you would completely ignore this transaction for accounting purposes until client pays which is non-sense as it could be easy to forget this invoice forever and never receive payment for your products or services. people get confused but cash-basis accounting is not really an accounting, it's just calculation method for your taxes.

gte910h 17y ago
Outstanding invoices are quite clearly still shown in my accounting program. They're not counted on income until the event of payment though. The invoicing program even auto-reminds late payers when they're past due. I can generate reports to show my company's AR whenever I want and open to a dashboard of that screen actually Losing track of AR is just poor bookkeeping. It's not a feature of cash bookkeeping. My AP is not as well tracked, that's for certain. Once expenses are paid, that is tracked, for sure, but owed debts/bills/etc aren't. That never was really something that interesting in the accrual based system.