This chapter contains the following topics:
Introduction to Cash Basis General Ledger
This appendix explains the simple difference between cash basis accounting and accrual basis accounting.
The primary point of difference between cash basis accounting and accrual basis accounting is the consideration of when revenue and expenses are recognized as having occurred.
Cash basis accounting recognizes revenue and expenses at the time of receipt of cash and at the time of disbursement of cash.
Accrual basis accounting recognizes revenue at the time that goods or services are provided, even though cash for these goods or services may not be received until later. Under this system, recognition of the costs of obtaining revenue (i.e., recognition of expenses) are matched to the recognition of revenue.
In a cash basis accounting system, revenue is recognized when cash is received. Expenses in such a system are recognized when cash is disbursed to pay for those expenses.
In an accrual basis accounting system, revenue is recognized when invoices are issued to clients (or customers), even though they may not pay for the services performed on their behalf until a later period. Expenses in an accrual system are recognized when they are incurred, even though they may not be paid until a later period. Vendors notify the firm about such expenses with invoices.
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Note |
In T/B, revenue can be recognized either when time and expense sheets are posted or when invoices are posted (see the chapter titled Control Information for the field "WIP revenue recognition"). |
To keep track of revenue recognized but for which cash payment has not been received, an accounts receivable ledger is maintained for each client (or customer), which shows how much each client owes the firm. Such A/R accounts can be referred to as "trade accounts receivable".
To keep track of expenses recognized but not paid for, an accounts payable ledger is maintained for each vendor, which shows how much the firm owes each vendor. Such A/P accounts can be referred to as "trade accounts payable".
The primary difference between cash basis systems and accrual basis systems is that cash basis systems do not have entries for trade accounts receivable or trade accounts payable, whereas accrual systems do.
PBS Accounting Systems are accrual basis systems.
To convert from an accrual basis to a cash basis, certain entries should be made to eliminate trade accounts receivable and trade accounts payable. This would be done within your General Ledger system. Your accountant can best advise you on what entries to make and in fact may convert your accounting records for you.
One way of doing this takes advantage of the PBS multi-company feature. At the end of the accounting year (or when you wish to do the conversion), you would set up a second company to be used for the conversion to cash basis accounting. See the Installation and System Guide chapter titled Define Multiple Companies for instructions on using the automated multi-company procedure.
Data files for different companies are distinguished by a different two character code at the end of each file name. For example, the Valid G/L Account File for company 00 has the file name ACCTFI00. whereas company 25 would use the file name ACCTFI25.
The installation procedure places data files in directories which are named with the two-character code for the package, followed by the two-character code for the company. For company 00, G/L data files are located in the directory GL00 and System data files are located in the directory RW00.
The automated installation procedure creates new, empty data files and directories for the packages you specify. You must accomplish the following things to set up for cash basis:
| 1. | A system backup of your data files is recommended before starting this procedure. |
| 2. | Add a multiple company for general ledger, using the automated procedure. |
| 3. | Copy your existing G/L and system data files to the data file directories for the new company. For example, the PBS installation procedure creates data file directories such as RW00 and GL00. If you specified company "25" in the automated multi-company installation procedure, directories RW25 and GL25 would be created. Copy data files from the RW00 directory to the RW25 directory and from the GL00 directory to the GL25 directory. |
| 4. | Rename each of the files in the RW25 and GL25 directories, replacing the 00 in the filename with "25". |
For example:
CHARTF00.vix becomes CHARTF25.vix
CHARTF00.DAT becomes CHARTF25.DAT
Although the primary difference between cash and accrual basis accounting is given above, there are other differences that must be accounted for when the conversion is done. For this reason, we recommend that you have your accountant make the adjustments needed for the conversion.