Can someone give me a dummy explanation of how accrual, modified accrual, and cash basis accounting work? As a professional business I see I am eligible for modified accrual, but I’m having a hard time making sense of it.
Cash basis is just that, you don’t record income or expense until you receive the cash or send it out, respectively.
Accrual matches the transaction to the account.
So, let’s say you purchase 10 tons of steel from supplier A, and the terms are net 30, and you don’t pay him until day 18 after you received the steel.
Cash basis you wouldn’t increase your costs (basis/inventory, etc) until day 18.
Accrual basis you record the accounts payable when you purchase the steel on day one, and increase your costs then.
[quote]CroatianRage wrote:
Can someone give me a dummy explanation of how accrual, modified accrual, and cash basis accounting work? As a professional business I see I am eligible for modified accrual, but I’m having a hard time making sense of it.[/quote]
Cash basis means you don’t book anything until cash is exchanged. So, if a customer pays with a credit card the transaction wouldn’t immediately be recorded (because you haven’t been paid by VISA or whoever).
Accrual basis means you book transaction with the assumption x will occur. So your same customer pays with credit, but instead of waiting until you receive cash you book a receivable (Accounts Receivable).
Modified, I assume is just a combination of the 2. Not sure what to tell you.
The difference between the two is really just timing.
[quote]countingbeans wrote:
Cash basis is just that, you don’t record income or expense until you receive the cash or send it out, respectively.
Accrual matches the transaction to the account.
So, let’s say you purchase 10 tons of steel from supplier A, and the terms are net 30, and you don’t pay him until day 18 after you received the steel.
Cash basis you wouldn’t increase your costs (basis/inventory, etc) until day 18.
Accrual basis you record the accounts payable when you purchase the steel on day one, and increase your costs then. [/quote]
You SOB…
[quote]usmccds423 wrote:
Cash basis means you don’t book anything until cash is exchanged. So, if a customer pays with a credit card the transaction wouldn’t immediately be recorded (because you haven’t been paid by VISA or whoever).
[/quote]
Just to be a ball buster…
The payments from CC’s are typically just booked as a deposit in transit reconciling item to cash and actually recorded as revenue in most cases I’ve seen.
[quote]countingbeans wrote:
[quote]usmccds423 wrote:
Cash basis means you don’t book anything until cash is exchanged. So, if a customer pays with a credit card the transaction wouldn’t immediately be recorded (because you haven’t been paid by VISA or whoever).
[/quote]
Just to be a ball buster…
The payments from CC’s are typically just booked as a deposit in transit reconciling item to cash and actually recorded as revenue in most cases I’ve seen.
[/quote]
_< He said, “dummy explanation”
Edit: I knew that was gonna be a bad example…
Lol, between the 2 of you combined I would have thought you guys would have a better dummy explanation.
Croatian, you’ll have to excuse my friends, they’re a little slow.
Cash basis seems like it was adequately explained. For the accrual basis, you record revenue as it is earned as opposed to when cash is received. So you record revenue when you sell a product or when you perform a service, although you may not get paid at that time. You would record expenses as they are incurred, regardless of when you decide to pay. So if you have some legal work done for a contract, you would record the expense as the work is performed rather than when you decide to pay the bill 30 days later.
I can’t believe I saw 2 explanations of accrual accounting without the words earned or incurred, you guys are killing me!
[quote]LankyMofo wrote:
Lol, between the 2 of you combined I would have thought you guys would have a better dummy explanation.
Croatian, you’ll have to excuse my friends, they’re a little slow.
Cash basis seems like it was adequately explained. For the accrual basis, you record revenue as it is earned as opposed to when cash is received. So you record revenue when you sell a product or when you perform a service, although you may not get paid at that time. You would record expenses as they are incurred, regardless of when you decide to pay. So if you have some legal work done for a contract, you would record the expense as the work is performed rather than when you decide to pay the bill 30 days later.
I can’t believe I saw 2 explanations of accrual accounting without the words earned or incurred, you guys are killing me!
[/quote]
He said simple. I tried to use as little “jargon” as possible.
f u lanky.
_<
Lol, you and your fancy words…
No one explained modified accrual!
And I won’t explain it b/c it’s very technical and specific. I’ve only ever seen it used by Governmental agencies, so stick with either Cash or Accrual, although I think you need to keep cash basis books anyways for tax purposes unless you have the ability to reconcile accrual to tax
God accountants are so anal…
[quote]dmaddox wrote:
[quote]ZJStrope wrote:
[quote]countingbeans wrote:
To be honest… I plan on staying public… the letters other than “CPA” seem like more and more of a waste every year that goes by. [/quote]
For sure, although it’s a lifestyle I don’t know if I could have maintained. Maybe I’ll consult/contract eventually.
CPA and maybe the new CFA (Certified Financial Analyst) are about the creme-DE-la-creme.
Then you have CIA (Certified Internal Auditor) which isn’t to bad.
And then you have a bunch of joke certifications, like my CFE (Certified Fraud Examiner), which took me exactly 1 week to study and pass. [/quote]
I agree with the CPA and CFA designations. Necessary to advance in both fields to high levels.
[/quote]
I would add the CMA to that.
[quote]usmccds423 wrote:
[quote]ZJStrope wrote:
[quote]usmccds423 wrote:
[quote]ZJStrope wrote:
[quote]sen say wrote:
[quote]Boyder326 wrote:
Any bits of advice or tips to point me in right direction or words of wisdom would be greatly appreciated.[/quote]
I was in a a similar situation 20 years ago. Looked into a Masters in Accounting, but found out it would take me less time to get my MBA and the Masters wouldn’t qualify me to sit for the CPA. Not sure if this helps, but it’s a little bit about me.[/quote]
Yeah, personally I wouldn’t suggest a Masters in Accountancy unless you are thinking of going into Tax. Get your undergrad accounting classes you need and work on an MBA if you need the 150 credit hours.
This is my opinion and my understanding of a lot of people who have received their MAcc. There’s only so much accounting knowledge and theory you can learn not on the job.[/quote]
I don’t know. My Master of Accountancy program only has 1 tax class.
An MST I’d agree of course.
Edit: I should say it’s not exactly a MAcc, the program is Master of Accounting and Business Advisory Services. The core course work is all accounting though. [/quote]
Yeah the normal MAcc programs have a few more. And why I say Tax isn’t b/c of the tax class, but b/c Tax people usually are more focused on accounting versus running a business too, if that makes any sense.
In the accounting world, even if you make it to a Controller level, you start caring more about the business aspect of things rather than accounting theory and application.
In either case, it’s not a waste or anything, I’ve just found more day to day value with a MBA versus a MAcc.
[/quote]
Gotcha, makes sense.[/quote]
Agree 100% with the above posts. An MBA would be more valuable to me, but I was working and going to school at night, and could do the BBA/MsAcc on a 5 year program. Worked out well for me.
[quote]Kayrob wrote:
Agree 100% with the above posts. An MBA would be more valuable to me, but I was working and going to school at night, and could do the BBA/MsAcc on a 5 year program. Worked out well for me. [/quote]
Yup! And some schools do not have a MAcc so they do a 5 year MBA program with a focus in several different areas (Accounting is usually one, but I did consulting/change management).
[quote]usmccds423 wrote:
Good accountants are so good at anal…[/quote]
Fixed.
[quote]LankyMofo wrote:
[quote]usmccds423 wrote:
Good accountants are so good at anal…[/quote]
Fixed.[/quote]
Only the ones with the little calculators…
I’m really bad at anal
[quote]countingbeans wrote:
[quote]LankyMofo wrote:
[quote]usmccds423 wrote:
Good accountants are so good at anal…[/quote]
Fixed.[/quote]
Only the ones with the little calculators…
I’m really bad at anal[/quote]
Well you can’t just shove it in there like it’s 11:59 on 4/15!
I just spent the last hour trying to think of an accounting joke . It’s not very ez…
[quote]usmccds423 wrote:
I just spent the last hour trying to think of an accounting joke . It’s not very ez…[/quote]
Why did the accountant cross the road?
because that is what they did last year.
My buddy wants to work on a screen play called “Material Misstatement”
Depending on the direction it goes, he may want to have a bad guy called “General Ledger”