That's not the difference. I understand you are using the credit card as
a "30 day net" account with each vendor (I also do that) but for
accounting purposes it's not the same as if each vendor were giving you
a 30 day net invoice (and the bank just bundling these for a single
payment of all such outstanding).
Yes "cash basis" is differing from "accrual basis" just by timing but
the "cash" in "cash basis" does not refer to physical money. When you
paid the vendor with a credit card you no longer have a liability with
that vendor (so record the expense then). When you later pay the credit
card balance that was not an expense but a transfer between assets and
liability.
How you date the expenses (paid by credit card) cannot depend on how you
pay the credit card company. Cannot depend on that you paid the "new
purchases" balance in full. Using your example, suppose in some month
you were unable to pay that entire balance in full, just paid half of
it. Do you propose booking each of the constituent expenses as one half
the amount? << leaving the other half till when you eventually pay down
that part of the outstanding credit card debt >>
Michael D Novack
On 4/9/2024 9:42 AM, Stan Brown (using GC 4.14) wrote:
On 2024-04-09 01:19, David Carlson wrote:
Nearly every time [the bank's] list doesn't match my list, the
difference is precisely the difference between when I wrote the check or
when I initiated a payment online or when I swiped a card and when they
posted the transaction to my account. That is what we users often consider
to be the difference between accrual basis vs cash basis.
I must respectfully disagree. That difference is simply timing. It can
occur whether you are on a cash basis or an accrual basis, but in itself
it is not a difference between cash and accrual basis.
The chief difference between cash basis and accrual basis, for a person
as opposed to a business, is whether you record money you owe but
haven't paid (liabilities) and money owed to you but not yet received
(assets).
For example, suppose you have a credit card, and to avoid paying finance
charge you chose to have your bank automatically pay the latest
statement balance on the payment due date. How is a restaurant dinner
recorded when you pay by credit card?
On cash basis, it's not an expense until it's paid. Therefore, _nothing_
is recorded until the payment date after the statement date after the
meal. Then you record
Dr: Expenses:Restaurant Dining
Cr: Assets:Cash in Bank
and a similar entry for every charge on that month's credit card statement.
On accrual basis, it's an expense when it's incurred. You make this
entry when the meal happens:
Dr: Expenses:Restaurant Dining
Cr: Liabilities:Credit Card
and then when the payment happens, you make _one_ final entry:
Dr: Liabilities:Credit Card
Cr: Assets:Cash in Bank
Since the payment is automatic, you and the bank will record it as of
the same date, whether you are on the cash basis or accrual basis.
Stan Brown
Tehachapi, CA, USA
https://BrownMath.com
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