Unlike the other Financial Statements (Balance Sheet and Profit and Loss Statement), the Statement of Changes in Equity report doesn’t provide an option to select the Accounting Method (Cash or Accrual Basis). Instead, it assumes Accrual Basis.
This creates a mismatch between the bottom line Net Profit (Loss) on the Profit and Loss Statement and the Profit (loss) for period line under Retained earnings on the Statement of Changes in Equity report. To provide an example, this occurs when an invoice has been received, but not yet paid, at the end of a period.
Cash basis accounting is not as accurate as accrual accounting. Cash basis accounting is usually adopted by small business for the purpose of simplifying accounting procedures or to defer income tax that may be payable in relation to income derived but not received in cash. The Statement of Changes in Equity has no basis for being prepared on a cash basis because the users of the report would normally require reports prepared under accrual accounting.
@tony In general I agree with your description for the business types that use Cash vs. Accrual Accounting. However, small business owners/partners using the Cash Accounting method still need the ability to review a Statement of Changes in Equity report (just because they’re smaller doesn’t mean they don’t need the capability). It appears that the goal of this software is to support both accounting methods based on the options it provides in the other financial reports. I’m simply asking for consistency.
I have only found the cash basis balance sheet useful for reconciling tax liabilities that are calculated on a cash basis from tax reports to the balance sheet. I don’t consider a cash basis balance sheet to be correct for financial reporting purposes but I understand that a business or organisation that adopts a cash basis of accounting may prefer consistency in all the reports.
