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This sounds like something good old fashioned double-entry bookkeeping would have caught immediately (hunky dory income from Stripe seemingly falling into a bla
by jallen_dot_dev 5y ago
This sounds like something good old fashioned double-entry bookkeeping would have caught immediately (hunky dory income from Stripe seemingly falling into a black hole). No need to scrutinize every transaction until you notice the ledger isn't adding up.
- Chirael 5y agoIt sounds like a classic example of how accrual bookkeeping can be misleading due to timing issues (the sale has already been booked even though the cash hasn’t been collected). I know it has other advantages vs. cash bookkeeping, but cash is so much easier to understand that I have always chosen it whenever possible (i.e., for a service business).
- eru 5y agoIf you have the data, either form of bookkeeping should be 'just' a shift in presentation? (I don't know whether the software used makes this easy?)
- HWR_14 5y agoYes, a lot of software can toggle between them via a trivial UI toggle
- eru 5y agoThanks! Btw, you could also fit this into the conceptual framework of accrual accounting, if you modelled counterparty risk.
- HWR_14 5y agoCould you? I thought accrual methods weren't allowed to think about future probabilities and had to decide on whether to recognize an event or not. I mean, if you had counterparty risk insurance, that would make sense. So I guess if you treated yourself as self insured, you would could create the same accounting treatment?
- eru 5y agoI don't know about what's legally allowed or not. (Might also depend on jurisdiction.) From what I remember, in general you have to recognize outlays with certainty, but you have more leeway in how you treat inflows. In general, you can also keep whatever you want in your books and run them however you like; you just have a legal obligation to also keep accounts that are in line with established standards. You see this distinction in GAAP vs non-GAAP numbers in the US, where GAAP stands for Generally Accepted Accounting Principles. In banking there's an obligation to model counterparty risk; but I have to assume that banks keep multiple copies of their balance sheets and accounts around: One version for eg tax purposes, and another version for things like determining capital requirements and risk exposure; if different rules apply in the different domains.
- HWR_14 5y agoDouble entry booking would have shown a growing accounting accounts receivable and an undersized cash account. Sure, you might dig into why that is, but it wouldn't leap out. Heck, in many ways, double entry bookkeeping on the accrual basis would be less likely to notice it.
- ovao 5y agoDepending on the process, maybe. I don’t know the landscape of accounting integrations with Stripe, but I probably wouldn’t want to sync a Stripe draft invoice as an open invoice to my accounting app. If there’s no open invoice, there’s no reference in the GL, and there’s nothing to be caught apart from an informal ‘cash flow seems to have taken a hit’. It’d take both an open invoice and running an A/R aging to catch this one, which isn’t implicit in double-entry accounting.
- scott_w 5y agoI don’t think it would. All the invoices were left in a Draft state, so I don’t think that appears on your ledger. You’d have to look at your list of Draft invoices to see it going up and up.