Cash-based accounting

[James Kerr]

On Wednesday 13 August 2008, Doug Laidlaw wrote:
> Sorry to ask a very general accounting question.  Perhaps somebody can
> point me to a good resource?
>
> I am a retired Solicitor.  In about 1970, our Courts ruled, in a case
> involving accountants, that accountants and solicitors in Australia must
> use revenue-based accounting  for income tax purposes.  (Barristers are
> still allowed to be cash-based.)  At that time I was working for a sole
> practitioner who had been using cash-based accounting.  He had to
> convert. In practice, revenue-based accounting is all that I have known.
>
> My daughter helped my wife set up a Windows program for her to keep the
> home books on, a system very like an electronic cash journal.  My
> daughter, who has a Bachelor of Business degree, claims that on a cash
> receipts basis nothing is entered in the books until the monthly bank
> statement comes in - _then_ we chase back through the cheque book to find
> what a particular debit was for, and only enter what is on the statement.
>  That makes a Bank reconciliation totally unnecessary, except as a test
> for completeness.  It sounds a stupid method to me, and conflicts with
> the manual, but I can't argue with a B.Bus., especially my own daughter. 
> Her husband is a tradesman, and I believe that under the above Court
> decision, he is still entitled to keep his books and lodge his return on
> a cash basis.
>
> I would enter each transaction as it occurred and reconcile it à la
> Quicken or Gnucash.  At a later date, we may wish to derive tax figures
> from the data, but it is only wages and investments.  The tax difference
> is irrelevant.
>
> Which one of us doesn't know what he/she is talking about?
>

You are correct and your daughter is wrong.

Jim