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Technically true, but the reaction to a purchase order is typically to issue an invoice. In any case, the argument is still true -- you invoice on a certain da

Technically true, but the reaction to a purchase order is typically to issue an invoice. In any case, the argument is still true -- you invoice on a certain day, but payment can happy any time. So just replace "PO" with "invoice" and it's still correct.

edw519 16y ago
...the reaction to a purchase order is typically to issue an invoice... This is also not true, at least not anywhere I've ever been. The typical reaction to a purchase order is to fulfill it, then invoice it. This is an absolutely critical distinction. Until an actual accounting transaction occurs, your books are not affected under any accrual method. A PO is not an accounting transaction. So just replace "PO" with "invoice" and it's still correct. No, replace "PO" with "invoice" and it becomes correct. You obviously have something important to offer and your your advice is well intentioned. But your lack of precision on this accounting matter (just like a technical or legal matter) can cause more confusion than help. Or worse. I really didn't mean to nitpick, but nitpicking was warranted at such a glaring error in terms. Lots of people here don't understand such matters and people like you and me should just leave this kind of advice to the appropriate experts.
- smartbear 16y ago
  Fair enough! You're certainly right about the facts and that being precise on these things is vital. Thanks!
run4yourlives 16y ago
Except that a Purchase Order and Invoice aren't interchangeable in accounting terms. A Purchase Order is the customer saying "I want to order the Big Mac Meal". An Invoice is you saying "That will be $5.95 please". A cash accounting system is essentially giving the option back to the customer (from your perspective at least) of being able to walk out the door. An accrual system does not, as the inference is there that you will chase them to pay. You would usually use the former if there is the ability to dispute the invoice (i.e. it is linked to a delivery of a specific product) because you don't want to be paying taxes on income that you may or may not receive. You can use the latter more effectively if there is an expectation of payment, (like a SasS contract) because it is simpler overall.
- gte910h 16y ago
  >A cash accounting system is essentially giving the option back to the customer (from your perspective at least) of being able to walk out the door. An accrual system does not, as the inference is there that you will chase them to pay. Having been in both situations, I disagree with this summary. You write down the bad debt in the situation of the unpaid AR in accrual, in cash, you close the invoice however you wish to do so. It's not like you stop tracking invoices in cash based accounting or who owes you money. The real big deal between accrual and cash is "control of large expense timelines" which you can pick which date you add them in when doing accrual, and you can't when you do cash. If you do a lot of business that falls over the end of your fiscal year (not a problem in my part of the woods) this can be an issue. Most of the rest of the changes are just changes in amount of paperwork.

edw519 16y ago

...the reaction to a purchase order is typically to issue an invoice... This is also not true, at least not anywhere I've ever been. The typical reaction to a purchase order is to fulfill it, then invoice it. This is an absolutely critical distinction. Until an actual accounting transaction occurs, your books are not affected under any accrual method. A PO is not an accounting transaction. So just replace "PO" with "invoice" and it's still correct. No, replace "PO" with "invoice" and it becomes correct. You obviously have something important to offer and your your advice is well intentioned. But your lack of precision on this accounting matter (just like a technical or legal matter) can cause more confusion than help. Or worse. I really didn't mean to nitpick, but nitpicking was warranted at such a glaring error in terms. Lots of people here don't understand such matters and people like you and me should just leave this kind of advice to the appropriate experts.

smartbear 16y ago
Fair enough! You're certainly right about the facts and that being precise on these things is vital. Thanks!

run4yourlives 16y ago

Except that a Purchase Order and Invoice aren't interchangeable in accounting terms. A Purchase Order is the customer saying "I want to order the Big Mac Meal". An Invoice is you saying "That will be $5.95 please". A cash accounting system is essentially giving the option back to the customer (from your perspective at least) of being able to walk out the door. An accrual system does not, as the inference is there that you will chase them to pay. You would usually use the former if there is the ability to dispute the invoice (i.e. it is linked to a delivery of a specific product) because you don't want to be paying taxes on income that you may or may not receive. You can use the latter more effectively if there is an expectation of payment, (like a SasS contract) because it is simpler overall.

gte910h 16y ago
>A cash accounting system is essentially giving the option back to the customer (from your perspective at least) of being able to walk out the door. An accrual system does not, as the inference is there that you will chase them to pay. Having been in both situations, I disagree with this summary. You write down the bad debt in the situation of the unpaid AR in accrual, in cash, you close the invoice however you wish to do so. It's not like you stop tracking invoices in cash based accounting or who owes you money. The real big deal between accrual and cash is "control of large expense timelines" which you can pick which date you add them in when doing accrual, and you can't when you do cash. If you do a lot of business that falls over the end of your fiscal year (not a problem in my part of the woods) this can be an issue. Most of the rest of the changes are just changes in amount of paperwork.