-- "accrual v. cash" reporting. explain what this is ...
Below is what I have for the business intro chapter. This is derived from a thread a month (?) ago with Derek, and has yet to be committed to CVS. I'll do that soon, but will require some chapter reorganization.
Original thread: http://www.gnucash.org/pipermail/gnucash-devel/2003-August/009809.html
<title>Accrual vs Cash Accounting</title>
<para>There are two main methods of accounting, cash accounting and accrual accounting.</para>
<para>In the <emphasis>cash accounting</emphasis> method, you enter income into the books when you actually receive payment, and you record expenses when you actually write a check. Most personal finance is recorded using the cash method because it is simple to impliment, and fairly accurately represents most personal finance transactions. However, for business accounting this method suffers from some serious drawbacks. Most notably, it is difficult to determine your real financial standing when you buy or sell items on credit, a very common business activity.</para>
<para>In the <emphasis>accrual accounting</emphasis> method, you enter income in the books when you make a sale, regardless of whether you have received payment or not. Inline with this, you record expenses when you receive goods or services, even if you will only pay for them at a later date.</para>
<para>The advantage of accrual accounting in a business setting is that it gives a more accurate picture of your finances within a financial period, even if payments will be arriving or leaving outside of this period of time. The biggest disadvantage to the accrual method of accounting is that it is more complex, requiring entry of a sale or purchase twice. Once at the time of the sale or purchase, and again at the time it is paid for.</para>
<para>The following is an example of a common problem with using the cash method of accounting in business. It is possible to artifically inflate apparent income in a period simply because many customers paid their bills from previous periods, but not due to increased sales. This kind of accounting distorts the financial view of the company, which may lead to making incorrect business decisions. </para>
<para>The GnuCash business features (Customer Invoices, Vendor Bills, and Employee Expense Vouchers) implement an accrual-based system. Income and Expenses are accounted as they happen instead of as they are paid. Indeed, there is no way to implement an A/R or A/P system without implementing it as an accrual system.</para>
<para>However all is not lost for companies that wish to continue to report on a cash basis. They key is rather simple: ignore any income or expenses that have not been paid. In other words, to compute the cash-basis income for the current period you have to add the income from invoices dated in previous periods but paid in this one and then subtract the income from invoices posted but not yet paid. Similarly for expenses you need to add and subtract the bills paid in the period.</para>
<para>Unfortunately GnuCash does not (yet) automatically convert from its accrual-based business accounting to cash-based (see bug #95700). Creating cash-based reports are planned for a future release, but for now users must make the computation by hand.</para>
-- -**-*-*---*-*---*-*---*-----*-*-----*---*-*---*-----*-----*-*-----*--- Jon Lapham <[EMAIL PROTECTED]> Rio de Janeiro, Brasil Work: Extracta Mol�culas Naturais SA http://www.extracta.com.br/ Web: http://www.jandr.org/ ***-*--*----*-------*------------*--------------------*---------------
_______________________________________________ gnucash-devel mailing list [EMAIL PROTECTED] http://www.gnucash.org/cgi-bin/mailman/listinfo/gnucash-devel
