Accrual / Cash Acct

[Christopher Lam]

Ok thank you both for your answers. I can confirm that, yes, I do aim to
maintain a positive balance, and it does ensure that expenses < income; ...
I think that for people like me, the main benefit of Gnucash is its
extensive tree structure rather than its business functions.

I think my limitation is that psychologically I will find it quite
difficult to know how much I can budget for investment etc. because usually
I'll have a positive balance every year, after paying taxes, that I then
allocate into long-term investing.


On 18 January 2013 19:03, Buddha Buck <blaisepascal at gmail.com> wrote:

> On Fri, Jan 18, 2013 at 12:17 PM, Christopher Lam
> <christopher.lck at gmail.com> wrote:
> > I've been using Gnucash successfully for the past 2 years now, and
> > I've always used the date as it appears from the bank statement to
> > record my transactions. This means I usually wait a few days for the
> > bank to release the statement onto onlinebanking to record the
> > transactions. I understand this may be described as (modified) Cash
> > Accounting.
> >
> > On the other hand, from my understanding of reading
> > bookkeeping/accounting guides, they usually advocate using the Invoice
> > Date or Date of Transacting (i.e. buying shares... buying a house...
> > doing work for a client for later billing/payment processing), or, as
> > is better known as, Accrual Accounting.
>
> The difference between cash accounting and accrual accounting doesn't
> have to do with when things are recorded going into and out of your
> bank account, but more about recording things as happening when they
> happen, regardless of how they affect your bank account.  Accrual
> accounting recognizes that incurring expenses and paying the bills may
> be separated in time; and that earning income and receiving payment
> may be separated in time.
>
> For instance, you could have a plumber come to your house on
> 12/28/2013 to fix a broken drain, and ask him to bill you.  Once he's
> done the work, you've incurred the expense.  A week later, on
> 1/4/2014, you might send him a check to pay for it. Under cash
> accounting, you would record the plumbing expense as on the 4th, as
> that's when you paid the money.  Under accrual accounting, you would
> record the plumbing expense on the 28th (when it happened), and the
> payment, separately, on the 4th (when that happened).  Between the
> 28th and the 4th, you'd have a recorded liability to pay that bill.
>
> One of the major effects of the difference is in reporting: in the
> example I gave, under cash accounting, the plumbing fix would count as
> a 2014 expense, but under accrual, it would be a 2013 expense.  This
> may not be important to you, but it's crucial for some organizations
> to keep track of that.
>