Reports, (the heart of darkness)

[Aaron Laws]

On Thu, Dec 8, 2016 at 8:31 AM, John Whitmore <arigead at gmail.com> wrote:

> On Wed, Dec 07, 2016 at 05:09:19PM -0500, Aaron Laws wrote:
> >
> > 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.
>
> This thred has thrown up two methods of doing Cash based accounting.
> Aaron's
> method is outlined above, and I'm not quite sure I fully understand it, and
> the other method was NOT to use GnuCash for invoicing but to use an
> external
> spread sheet or something. Then you just record the payments in GnuCash.
>
> I wonder could you expand on the above method:
>
> > 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
> >
>
> At present I create an invoice for consultancy work:
>
> Income Account = Income:Consultancy
> Subtotal       = 3,500.00
> Tax            = 805.00
>
> Once posted that shows up in:
>
> Assets:Accounts Receivable as 4,305.00
> Income:Consultancy as 3,500.00
> Liabilities:Vat as 805.00
>
> So in the method above I'd create a manual transaction in
> Revenue:Consulting
> of 3,500.00. Not sure where Revenue:Consulting would be? What's the top
> level?
>

Income is generally regarded as the net between revenue and expenses, so I
call my top-level account "Revenue". What you show (the transaction
involving accounts receivable) demonstrates the accrual basis. If you want
to create a cash-basis transaction for earning money, use:

dr: assets:chequing                 $4305
cr: Income:Consultancy                              $3500
cr: Liabilities:Vat                                         $805

I don't use the business features, nor do I know how to use them.
Furthermore, I'm not an accountant.