Reports, (the heart of darkness)

[Aaron Laws]

On Wed, Dec 7, 2016 at 4:51 PM, John Whitmore <arigead at gmail.com> wrote:

> OK Now I think I have a sensible question. I'm looking at the "Income
> Statement" report which looked good, but I've found a problem. Once I file
> an
> Invoice in GnuCash it shows up as "Income" I'd have said that it's only
> "Income" when the invoice is actually paid.
>
> That's distorting my income as it looks like I've got money I don't
> actually
> have as yet. Is this the way it would be expected to work? I'm not an
> accountant so I could have the wrong impression of things.
>

It looks like you have stumbled upon the difference between accrual basis
and cash basis accounting. Generally accepted accounting principles dictate
the use of the former: When you *earn* revenue, it should be reflected in
your books, not when you get the money (see
https://en.wikipedia.org/wiki/Revenue_recognition). The United Statesian
Internal Revenue Service allows me to use either when doing business taxes,
though, understandably, they're picky about changing between the two
systems.

This is usually done by crediting an "accounts receivable" account to
represent that someone owes you money:

dr: assets:AR:consulting          $250
cr:           revenue:consulting            $250

When you actually get the money, record it as such:

dr: assets:chequing          $250
cr:            assets:AR:consulting       $250

You should speak to your accountant or tax adviser about whether to use
cash or accrual basis accounting and which might be best for you from a tax
perspctive.

I'm not an accountant.