Accounting methods

 

The accounting method you use determines how revenue and expenses are recorded in your system.  Four accounting methods are provided - two methods of accrual accounting and two methods of cash-basis accounting.  The method you choose depends on how your firm records revenue and expenses and on the country in which your firm operates.  Your accountant will be able to determine which method is best for your firm.  You must select the appropriate accounting method before you begin data entry.

 

Cash-basis accounting

In cash-basis accounting, revenue is recorded when it is received and expenses are recorded when they are paid.  For example, bills are recognized as expenses when you pay them, not when you receive them.  Firms using cash-basis accounting typically do not record accounts receivable, accounts payable, or accrued expenses.  Cash-basis and modified cash accounting do not apply to firms operating in Canada.

 

Accrual accounting

In the accrual method, revenue is recorded when it is earned and expenses are recorded when they are incurred.  Bill are recognized as expenses when you receive them rather than when you pay them.  You can record billings as revenue, or unbilled time (work in progress) as revenue.  If you record billings as revenue, revenue is recorded when you enter bills.  If you record work in progress as revenue, revenue is recorded when you enter fees using the Time Entry program.

 

 

To determine which accounting method is in use, select the Control Accounts tab on the System Settings screen.  The Revenue Type code indicates the accounting method in use.

 

Revenue Type code

Accounting method

C

Cash accounting

M

Modified cash accounting

B

Accrual, with billings recorded as revenue

W

Accrual, with unbilled fees (work in progress) recorded as revenue

 

 

The program's automatic journal entries are based on your accounting method.

 

Important:  Do not change your accounting method after you begin entering transactions unless you have discussed the change with your accountant and are familiar with the steps required to ensure your general ledger is adjusted appropriately.