> Date: Sat, 14 Sep 2019 07:07:36 -0500
> From: o1bigtenor <[email protected]>
>
> 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]>
> > >
> > > 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.
I don't follow how this is related to the distinction Martin was
drawing. Here's an accrual-based example where taking possession of
an item (`expense') happens in one year, the payment for the item
happens in another year, and the cheque clears separately from the
payment when you get your bank statement a month later:
; Order a batch of widgets.
2018-12-30 Acme Widgets
Expenses:Widgets 100 EUR
Liabilities:Acme Widgets:Order #12837
; Write a cheque for the batch of widgets.
2019-01-05 Acme Widgets
Liabilities:Acme Widgets:Order #12837 100 EUR
Assets:Bank:Cheque:123 ;or Liabilities:Bank:Cheque:123
; Reconcile the bank statement.
2019-02-01 Bank statement
Assets:Bank:Cheque:123 100 EUR
Assets:Bank:Balance
Can you expand on how _notating each cheque in its own ledger account_
so that you can have separate dated records for writing the cheque and
for clearing it gets in the way of business accounting?
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