On Wed, 13 Apr 2011, Luke wrote:
I really don't like it either, but like I said, I have had more than one accountant tell me this, and my current one prefers all his service business clients use it.
I don't know about the US but I'm also in service business but never did any cash accounting. It is neither typical nor useful because customers just don't pay cash.
Actually, cash vs. accrual accounting has nothing to do with whether the invoice is paid with cash, check, or chickens. It's when the payment is received and when you pay your vendors. Cash method. If you use the cash method of accounting, you record income only when you receive cash from your customers. You record an expense only when you write the check to the vendor. Most individuals use the cash method for their personal finances because it's simpler and less time-consuming. However, this method can distort your income and expenses, especially if you extend credit to your customers, if you buy on credit from your suppliers, or you keep an inventory of the products you sell. Accrual method. With the accrual method, you record income when the sale occurs, whether it be the delivery of a product or the rendering of a service on your part, regardless of when you get paid. You record an expense when you receive goods or services, even though you may not pay for them until later. The accrual method gives you a more accurate picture of your financial situation than the cash method. This is because you record income on the books when it is truly earned, and you record expenses when they are incurred. Income earned in one period is accurately matched against the expenses that correspond to that period, so you get a better picture of your net profits for each period. In setting up L123 (and SL before it), I specified cash. Yet, I enter vendor invoices when received even if I don't pay them until the end of the month, and I enter a receivables transaction when I submit an invoice. Balancing those transactions occur when I print payables checks and deposit receivable checks so I suppose I actually use a hybrid method. Works for me. Rich _______________________________________________ SQL-Ledger mailing list [email protected] http://lists.ledger123.com/mailman/listinfo/sql-ledger
