Reporting period or report? I’m not looking at a report I’m looking at my reporting period. the invoice was created in the 2021 year, paid partially in that year, then paid in entirety in the 2022 year. I’m looking at my 2022 year and still see a .01 discrepancy and a $10,450.01 cash basis adjustment.
Which is fine.
- Your sales on cash basis for 2021 are 36,699.99 after -10,450.01 cash-basis adjustment.
- Your sales on cash basis for 2022 are 10,450.01 after +10,450.01 cash-basis adjustment.
So your total sales on cash basis for 2021+2022 are 47,150.00 which is exactly the total of your invoice.
Yes. Your cash-basis sales are 1 cent less in 2021 and then 1 cent more in 2022. The important thing is that even if there is discrepancy on cash-basis due to rounding. It won’t be carried in your books forever which I believe was your initial concern.
That 1 cent extra in 2022 is making up for 1 cent less in 2021.
@Lubos, I think the underlying issue even if 1 cent relates to the fear many of us have of tax authorities and their fines. Some of our businesses got huge fines for not submitting 0 VAT as originally only companies at a certain revenue level were supposed to be engaged in VAT. However, we learned that when registered as a business they had to sumbit 0-vat (this was a small farm).
So be it 1 cent or not that gets over or under-reported the issue deals with fear for tax authorities where sometimes these may not legally operate and just want more money for a business. So what can be done? Maybe allowing many more underlying digits will help.
We solved this issue only accepting rounded payments to rounded invoices but this may be impractical elsewhere.
Each jurisdiction as specific rulings related to the range of rounding practices they allow. In Australia the rounding for GST must be done at the invoice level and in a particular way, however the precision software software rounds at the line item level is not specified.
Managers compliance or otherwise in other jurisdictions would require a detailed examination of each jurisdictions rulings.
This entire issue points to potential inappropriate selection of cash basis accounting for businesses where partial payments are allowed and accepted. When you do that, you are violating a fundamental rule of cash basis accounting, that income is recognized when payment is received. By accepting partial payments, you are effectively recognizing income that hasn’t been received but has been invoiced, and therefore had to be squeezed into a temporary adjustment, which is really a receivable by another name. Switch to accrual based accounting and the issue goes away.
In Australian cash vs accrual accounting depends on an agreement between the business and Australian tax office. Partial payment for invoices is not relevant to that agreement, and are completely legal.
Notice I said nothing about legality. Cash basis accounting can be legal without being appropriate.
It’s worth noting that in at least some jurisdictions, that inappropriateness when inventory is maintained leads to its prohibition precisely to prevent situations like this one, among other reasons.
Hello, I am the treasurer for our HOA and am moving our accounting to Manager software from another accounting software. We use cash basis for our financials. Our revenues are about $15,000 and expenses are about $10,000-$12,000 per year.
I read your reply that the software is working as designed to add a cash basis adjustment for invoices that are not completely paid within the calendar or business’s fiscal year until they are fully paid in a future time period. Interesting approach! The accounting software I am moving our books from to Manager does not take this cash basis adjustment approach. Is this cash basis adjustment explained in the Manager manual? I downloaded the pdf version (Sept 13, 2023) from several months ago but did not see it; but then I could have missed it. There may have been a hint about it under section 1.2.7 for clearing transactions for the Suspense account; but it would be merely a hint.
Anyway, I am needing to understand how to book our ag lease (done to reduce property taxes for the property owners). The leasee has been given “credit” for the ag lease rent in exchange for maintaining the exterior subdivision leases and road maintenance (he also has a excavation service that includes road grater, etc). The previous treasurer set up a current liability account for the ag lease. She booked a debit to the liability account for each year’s rent due from the leasee. When the leasee invoiced us for road work or fence repair, she would credit the liability account and then send a check for the difference. So the transactions would look like this:
Ag Lease Payable to be debited
Lease income to be credited
Road maintenance or Fence repair expense to be debited
Ag Lease Payable to be credited
Bank Account to be credited if the expense was more than the accumulated ag rent
As you can see, we ran all the transactions through the Ag Lease Payable liability account which would net to zero periodically as all the accumulated ag rent was offset against the maintenance or repairs.
I finished booking 2022 activity in the Manager software. We had 5 years of accumulated ag lease rent (2018 to 2022) plus a check for $550 that offset an invoice for $10,000 for fence repair and road maintenance for 2022. The $10,000 invoice is not paid off with cash so I have three cash basis adjustments in Manager for 2022: (1) a $.01 cent adjustment on the balance sheet and (2) and (3) two cash basis adjustments to the fence repair and road maintenance expense accounts on the income statement. At the end of 2022, the Ag Lease Payable liability account for my old software was zero balance as all the “credits” for five years of ag lease rent were wiped out with this one invoice.
I am balancing the balance sheet and income statements at each year end between the two software programs - the old accounting software and Manager. Given this Manager cash basis adjustment which resolves itself when an invoice is paid in cash, how do I address the situation where the invoice is “paid” with debits to the Ag Lease Payable liability account and a check for the balance. If you need numbers, the debits to the Ag Lease Payable account are as follows:
2018 for $900
2019 for $2,250
2020 for $2,250
2021 for $1,800
2022 for $2,250
for a total of $9,450
Invoice is for $10,000 with $200 for fence repair and $9,800 for road maintenance.
Check paid for difference of $550.
For Manager: Balance sheet shows a cash basis adjustment of $0.01 cents for the Ag Lease Payable. 2022 Income statement shows a cash basis adjustment of $11 for fence repair and $538.99 for road maintenance.
For Old Acct SW: Balance sheet shows zero balance for Ag Lease Payable. 2022 Income statement does not show the two cash basis adjustments for fence repair and road maintenance fro the Manager SW. With the cash basis adjustments in Manager, the income statement does not agree with the income statement from the old accounting software.
I don’t think the HOA Board will agree that over time, the cash basis adjustments will work out over a multi-year period as the balance is zero for the Ag Lease Payable at the end of 2022.
Totally open to hearing a recommendation about how to resolve this cash basis adjustment when a bill is “paid” with cash and “credits”. I really do need your help to resolve this situation as I am new to the Manager SW.
Thank you so very much in advance for your guidance and help!
Your tome doesn’t really contain a question about Manager. You need to consult your accountant. Whatever your accountant tells you should be done can be handled by Manager.
@lubos said that when an invoice is fully paid off, then the cash basis adjustment will end. If an invoice is not fully paid with cash but with credits, now does the cash basis adjustment in Manager end. I don’t think my accountant can help with how the software is programmed to operate. I seriously do need someone from the Manager staff to explain how using credits against an invoice will clear this cash basis adjustment.
I had no intent about a particular tone, only that it is an interesting programming approach that I have not seen in other accounting software programs and I will likely have a challenge to explain this approach to my HOA board who are not finance people.
I did not comment on your tone. I used the word tome, referring to a lengthy body of text.
As to your specific question concerning programming, only @lubos could answer that. But you might answer it yourself by setting up a test business and entering sample transactions to see what happens. You would also then have an example to show your board. Every Manager user should have a test business configured for the types of transactions and situations they encounter. That lets you experiment without jeopardizing your real data.