Cash Accounting And Accrual Accounting

Today i am talking about cash accounting and accrual accounting. lets first start with
Cash Accounting.

The cash basis of accounting is the most elementary form of accounting and is typically used by individuals, small businesses, and school districts. Under the cash basis, revenues are recorded when received and expenditures are recorded when monies are paid.


The virtue of cash accounting is its simplicity. As accounting is not performed
until monies are received or spent, the relationship of revenues and expenses
to the accounting period in question is dependent on the actual flow of cash.
This system makes no provision for noncash transactions; therefore, the
accounting reports may provide inadequate information for control purposes
and may limit analysis of the financial condition of the entity.

The modified cash basis of accounting is the cash basis of accounting that
incorporates modifications “having substantial support.” A modification
having substantial support is not clearly defined. However, these
modifications are frequently made to recognize certain transactions on
an accrual basis and, thereby, represent transactions that would be
reported by an entity following General Accepted Accounting Principals
(GAAP). The modifications, however, should not be considered illogical
Districts need to work with their independent auditors to resolve any
questions or issues relating to the modified cash basis of accounting.

Accrual Accounting

Accrual accounting is a system whereby revenues are recognized when
earned and expenditures are recognized in the period incurred, without
regard to the time of receipt or payment of cash. This method of accounting
allows a more accurate evaluation of operations during a given fiscal period.
Accrual accounting may be based on one of two methods: full accrual or
modified accrual.

The term “full accrual” is sometimes employed and can have one of two
meanings. Either an extensive number of categories in both revenues and
expenditures are accrued and/or this activity is continuous (daily) rather
than periodic. Increasing the degree of complexity of financial reporting
creates an associated cost in the posting, recording, and balancing of more
accounts. Full accrual is typically used in enterprise and agency funds as a
number of major items that are considered expenses in a full costing system
(such as depreciation) need to be recognized.

Modified accrual accounting falls between the cash basis and the full accrual
basis and is the most common accrual basis used by school districts. In
modified accrual accounting, most revenues and expenditures may be
handled on a “cash” basis for daily processing and converted to an accrual
basis by periodic adjustments. The determination of how frequently the
adjustments will be made is a value judgment that depends on the
significance of the items, the purposes for the accounting, the need to
reflect the operations of the enterprise, and the associated cost and
complexity of the system.

General Journal Entries Examples

The best way to learn general journal entries to work with examples. Let's get started.

Let’s first review the rules of debits and credits by working with the accounting equation (Assets = Liabilities + Stockholders’ Equity). Assets are increased with debits and decreased with credits.

Liabilities are increased with credits and decreased with debits.

Below are the some general journal entries

Transaction 1 - A new corporation issues 1,000 shares of common stock and receives $75,000 cash.

Step 2 -- The journal entry is
Cash 75,000
Common Stock 75,000

Transaction 2 -- The corporation acquires equipment. The purchase price is $100,000. The corporation pays $25,000 cash and signs a note for the balance.

The journal entry is:

Equipment 100,000
Notes Payable 75,000
Cash 25,000

This is a compound entry because it has more than one credit. A transaction can affect more than one debit and/or more than one credit account. The important point is that the total of all debits equals the total of all credits for each journal entry.

Transaction 3 -- Services are performed and clients are billed for $40,000.

The journal entry is
Accounts Receivable 40,000
Service Revenue 40,000

Transaction 4 -- Salaries of $10,000 are paid.

The journal entry is
Salaries Expense 10,000
Cash 10,000

Transaction 5 – Cash, in the amount of $20,000, is collected from clients who were previously billed. (Transaction 3 - Services were performed and clients were billed for $40,000.

The journal entry is:
Cash 20,000
AR 20,000

Transaction 6 -- $1,000 of supplies are purchased on account.

The journal entry is:
Supplies 1,000
AP 1,000

Transaction 7 -- A contract is signed with a client. The client immediately pays $15,000 for services to be performed at a later date.

The journal entry is:
Cash 15,000
Unearned Revenue 15,000

Transaction 8 -- $1,000 is paid for the supplies purchased in Transaction 6.]

The journal entry is:
Accounts Payable 1,000
Cash 1,000

Transaction 9 -- Services are performed and cash of $2,000 is received.

The journal entry is:
Cash 2,000
Service Revenue 2,000

Transaction 10 -- Dividends of $2,500 are paid to the stockholders.

The journal entry is:
Dividends 2,500
Cash 2,500

These ten examples have given you an opportunity to work with the rules of debits and credits. (Practice)

In addition, you are now comfortable with the two step process of analyzing transactions and then recording them in the general journal. (Confidence)

Accounts Payable Job Description

Here's the accounts payable job description for Accounting Technician:

GENERAL PURPOSE

Under general supervision, performs responsible accounting support and administrative work in the preparation, processing, maintenance and verification of accounting documents and records, such as utility billing, business license renewal, payroll and/or accounts payable; and performs related duties as assigned.

ESSENTIAL DUTIES

The duties listed below are intended only as illustrations of the various types of work that may be performed. The omission of specific statements of duties does not exclude them from the position if the work is similar, related or a logical assignment to this class.

An Accounting Technician with primary responsibility for accounts payable, payroll and fixed assets:

Verifies, audits, edits and prepares bi-weekly payroll and maintains payroll records; reviews employee timesheets; identifies and works with appropriate department/s and/or supervisor to resolve timesheet discrepancies; enters data in the payroll system; generates, reviews and reconciles payroll reports to ensure accuracy and completeness of payroll and deductions; transmits direct deposit information; prints and distributes checks and direct deposit check stubs; enters employee transaction information in the payroll system as necessary.

Reviews, tracks and maintains records of applicable employee benefits; prepares and generates deferred compensation payment reports; prepares, generates and provides payroll reports to PERS; as appro-priate, reconciles health and benefits provider and City benefit data; compiles and provides necessary reports and initiates payment to providers; resolves billing errors and discrepancies with providers; maintains benefits and workers compensation files; processes workers’ compensation claims.

Informs and educates new employees regarding City benefit plans during the orientation process; answers department and employee questions regarding benefits plans and deductions; explains benefits eligibility, plan coverage’s and applicable regulations and carrier policies and procedures; as necessary, develops and/or provides pertinent information to employees about changes in benefit plans; processes employee benefit changes.

Reviews, processes, inputs and, as approved, prints and distributes checks for payment of vendor invoices and other accounts payable; contacts vendors with questions and/or responds to vendor inquiries and concerns; distributes vendor invoices for approval; inputs approved invoices; prepares bi-weekly demand registers; prepares manual checks as approved.

Prepares, reviews and reconciles quarterly and annual federal and state payroll tax reports, including generating, reviewing and distributing W2s and 1099s and corresponding reports within mandated time frames.

Maintains City fixed asset records; generates, reviews and updates fixed asset reports as required; coordinates bi-annual capital asset physical inventory; communicates with departments to ensure assets are properly recorded and tagged.

What Is The Difference Between The General Ledger and The Trial Balance?

There are four Parts to think about here:

Chart of Accounts
General Ledger
Trial Balance
Financial Statements

The Chart of Accounts is exactly what it says. It is simply a list of all the names
of the accounts found in the General Ledger whether there is an account balance
or not.

The General Ledger consists of all the accounts including some that may have a
zero balance. As said earlier, all transactions are summarized into these
accounts. A detail listing of every entry is recorded in the General Ledger.

The Trial Balance consists of a list of each General Ledger account that has a
final balance in it. The purpose of the report is to make sure that the debit
numbers equal the credit numbers. In the olden days, the Trial Balance was
used to verify the balances before preparing the financial statements. In today’s
world, this report is basically redundant in that the computer immediately
indicates whether the General Ledger is out of balance. Simply running a
financial statement and reviewing the account balances from there is often
sufficient, eliminating the need for the Trial Balance.

The Financial Statements of course, are a listing of all the final balances in the
General Ledger, but reformatted into financial statement form giving summary
totals and net profit or loss information.

Sample Of A Profit And Loss Statement

First of all i will tell you The Purpose of a P&L Statement.

A Profit and Loss (P&L) statement
measures a company’s sales and
expenses during a specified period of
time. The function of a P&L statement is
to total all sources of revenue and
subtract all expenses related to the
revenue. It shows a company’s financial
progress during the time period being examined.

The P&L statement contains uniform categories of sales and expenses. The
categories include net sales, cost of goods sold, gross margin, selling and
administrative expenses (or operating expense) and net profit. These are
categories that you will use when constructing a P&L statement.

Since it is a rendering of sales and expenses, the P&L statement will give you a
feel for the flow of cash into (and out of) your business. The P&L statement is
also known as the income statement andthe earnings statement.This Business
Builder will explain, through a step-by-step process and the use of a worksheet,
how to create a P&L statement. Accounting terms will be defined as they are
introduced, and a glossary is included for your reference. This Business Builder
will define and explain the data needed to put together a P&L statement, but
before you start, it might be helpful to consider the following questions:

• Does your inventory method allow you to calculate or reasonably estimate the quantity and cost

of goods sold during a specific time period?

• Do you have records of general and administrative expenses?

• Can you separate selling-related expenses from other expenses?

Why Prepare a P&L Statement?

There are two reasons to prepare a P&L statement. One reason is
the P&L statement answers the question, “Am I making any money?”
It is a valuable tool to monitor operations.

A regularly prepared P&L statement either quarterly or monthly
for new businesses will give owners timely and important information
regarding revenues and expenses and tell them whether adjustments
might be necessary to recoup losses or decrease expenses. The P&L
statement also allows outsiders to evaluate your ability to manage
and use your company’s resources.

The second reason to prepare a P&L statement is because it is required
by the IRS. It is the record of a business’ operation that is used to assess
taxes on profits earned. It is the only financial statement required by the IRS.

Below is the Example of the profit and loss statement (click the image to enlarge)

Analysing Performance Of The Balance Sheet

The balance sheet for your business gives you a 'snapshot'
view of what the business is worth, its assets and liabilities, at
one particular moment in time. Usually this is at the end of the
financial year and allows you to compare the situation of the
business from one year to the next but you can also draw up
quarterly or even monthly balance sheets. The balance sheet
should be produced once your trading profit and loss account
has been drawn up.

The Balance Sheet

A balance sheet shows:

-The financial situation of the
organisation at a particular time

-The change from one period
(usually a year) to the next

-How much money is in the business

-The balance of assets Vs liabilities
and fixed assets Vs liquid assets

A balance sheet is concerned with 3 things:

Assets

Liabilities

Capital

What Can The Balance Sheet Tell You?

A balance sheet can tell you how much the business or organisation is worth. For
community-based organisations it also can tell you how much the community has
increased the assets under its control and therefore how powerful or healthy it is.
This can only ever be a ’general’ figure, showing the underlying value of the funds
in the organisation at that particular time. No-one can safely predict the future. But
compared with previous years it is a simple measure of performance.

List Of Online Accounting Related Resources

Accounting Terminology Guide

http://www.nysscpa.org/prof_library/guide.htm

American Accounting Association

http://aaahq.org/

American Institute of Certified Public Accountants

www.aicpa.org/

FASB: Financial Accounting Standards Board

www.fasb.org/

International Accounting Standards Board

www.iasb.org/

Internal Revenue Service

http://www.irs.gov/

National Association of Black Accountants, Inc.

http://www.nabainc.org/

U. S. Government Accountability Office

www.gao.gov/

U. S. Tax Code Online

http://www.fourmilab.ch/ustax/ustax.html

VentureLine

www.ventureline.com/