Accounting periods problem

[Doug Laidlaw]

On Tuesday 11 March 2008 9:08:35 pm Wahur wrote:
> On Tue, Mar 11, 2008 at 11:56 AM, Elizabeth Dodd <edodd at billiau.net> wrote:
> > You are apparently to use accrual accounting.
> > In our jurisdiction, some people are on accrual accounting and some are
> > on cash basis accounting (which you were using).
> >
> > If it is accrual accounting, it goes in on the month the bill gets to you
> > /
> > the month it refers to
> > not the month you pay it.
> >
> > You just have to adjust your dates to correspond to the Tax requirements,
> > not
> > to put in as date_paid.
> >
> > No accounting package I can imagine would do this automatically - it is a
> > case
> > of ensuring you enter for correct time period.
> >
> > Liz
>
> Nope. There are actually four time items to be recorde for every
> invoice/bill.
> Issue date, due date, payment date (those may be multiple), and accounting
> period the document belongs to.
> As I understand it, issue date should not determine accounting period, at
> least not always.
> Like in my example - my February phone bill (that should be accounted as
> February cost) was issued in March, so Gnucash considers it automatically a
> March cost.
> Of course, I might overcome this problem by saying that this bill was
> issued in February 29, not someday in March, but this would be poor
> workaround that just creates inconsistency between program data and paper
> trail.
> And i am quite sure that many accounting programs let you do that (at least
> thats what my auditor said).
>
> Wahur
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I was a lawyer working on an accrual system.  It matters only on balance date.

When the phone bill comes in, enter it as an Account Payable.   It is then an 
accrued liability for that month.  When you pay it, debit the liability, as 
Mike or Penny says.  The invoice is what increases your telephone account; 
the payment involves only Creditors and Bank.

On balance date, you have an accrued liability, that is an expense as far as 
income tax goes.  If you are on a pure accrual system, the date of payment 
doesn't come into it.

Do the same with your fees earned.  If the bill was sent this period and paid 
in the next one, it belongs to the current period.  You then have the job of 
writing off the bad debts later.

If you need a reminder to pay the bill, use a Scheduled Transaction.

Cash accounting is far more convenient, but here, lawyers and accountants 
aren't allowed to use it for taxation purposes.

If you really want to match revenue against the accounting period, you may 
have to do the following:

Assume that your phone rental is paid in advance (mine is) for 3 months, 
partly for the current accounting period, and partly for the next one.  Then 
on balance date, you need to do a journal entry to split it between the two  
accounting periods.  You might do that with annual charges such as insurances 
or trade memberships.  The program won't do that for you.  One with "all 
bells and whistles" might??  I never worried about hair-splitting to that 
extent.

It sounds as though you need to find out exactly what you have to do.  Then 
how you do it, will probably become clear.

HTH,

Doug.