Cash versus Accrual Accounting

[John Morris]

Hi Mark,
  The problem, as I see it, is that posting the invoice creates a transaction in Assets:Receivable. That transaction, naturally, has two sides: the Receivable account and the income account. As I understand it, that is the only time the income account is involved because payments processed transfer amounts from the receivable account to the payments account.

  When tax time rolls around, I normally report how much income we received by looking at the income account, but those transfers happen when the invoice is generated, not when the invoice is paid, accrual accounting.

  You say that converting accrual accounting to cash accounting is not a huge effort, but I'm looking for the details of exactly how this would work. I suppose I could look at transfers from the receivables account to the payment account, but that is slightly less convenient because there are several payment accounts. Also, it feels wrong because I would be examining the indirect effect of the invoices rather than their direct effect.

  This is why I posted to the list: I would like to know how other people are doing this particular task in GnuCash. We are also planning to use GnuCash for both our personal and business books. I've been using GnuCash for the personal books for a few months now and my wife will start using it as soon as I iron out the last details. For what it's worth, the only reason we are using two different sets of books is that Sue handles the business books and I handle the personal books.

Best,
John

On Oct 3, 2014, at 4:36 PM, Mark Phillips wrote:

> John,
> 
> I guess I don't really understand the problem. When you post an invoice, the documentation says it goes into your A/R account. Income is not affected until the invoice is paid, unless you changed the accounts used by the invoicing module. 
> 
> Gnucash runs business accounts on the accrual method. Converting from accrual accounting to cash accounting is not a huge effort if you understand the differences. You can most likely create cash basis income/expense reports and accrual basis income and expense reports using the report generator by selecting the correct accounts (I have not tried this ymmv), or an export to a spreadsheet.  I don't think you need a separate set of books. 
> 
> However, I am not an accountant, but I do use Gnucash for my business and personal accounts - those are two separate sets of books, btw. ;)
> 
> Just my 2 cents.