On Fri, Sep 13, 2019 at 10:33 PM Taylor R Campbell <[email protected]> wrote: > > > Date: Sat, 31 Aug 2019 20:59:16 +0200 > > From: Martin Michlmayr <[email protected]> > > > > * Taylor R Campbell <[email protected]> [2019-08-14 21:04]: > > > ; hand-written ledger entry > > > account Liabilities:Bank:Cheque:123 > > > 2017-01-31 Landlord > > > Expenses:Rent $750.00 > > > Liabilities:Bank:Cheque:123 > > > > > > ; automatically generated by bank2ledger script > > > 2017-02-25 Bank statement > > > Liabilities:Bank:Cheque:123 $750.00 > > > Assets:Bank > > > > This works fine for personal accounts where you can do whatever works > > best for you instead of following official accounting practices. > > > > This won't work for a business, however. Cheques are treated as > > immediate cash expenses: when you write a check, the money immediately > > gets deducted (in your books), even though in reality it only gets > > deducted from your bank account when the person deposits the check. > > Can you expand on the distinction you're drawing here? > I can give some clues here. Almost all businesses are required to use an accrual accounting system. Only individuals are allowed to use a cash system. The distinction can be subtle but is crucial to entities like your taxation authorities.
Some clarification using examples. You take possession of an item but pay for it 2 weeks later and that happens to be in another calendar year. In a cash based accounting system that item is deemed to have been purchased in that other year. This means that the expense is logged in the other year for taxation purposes. Accrual accounting would have that purchase logged into the year that the item was taken possession in. A business can 'sell' an item to customer x where there is a legal invoice (bill of sale or whatever document is used) but the customer is going to take possession of the item at some later date (maybe even 5 years later (extreme example!!)) where the customer pays upon receipt. The business logs the sale of the item and the resulting income - - - - even though no money has changed hands. (Its a great technique for making a business look really profitable.) The distinctions as to when something happens is important in an accrual accounting system (almost all businesses are required to use this!!!) but in a cash accounting system - - - -well - - - - everything is booked as to when the 'cash' changed hands. HTH -- --- You received this message because you are subscribed to the Google Groups "Ledger" group. To unsubscribe from this group and stop receiving emails from it, send an email to [email protected]. To view this discussion on the web visit https://groups.google.com/d/msgid/ledger-cli/CAPpdf58k2%2B0UTR8CO7mmC8Dk1zxgkjNUewytCAMFdiRWB2g%2BUA%40mail.gmail.com.
