Hello, could this be a bug? The statement Actual vs Budget still maintains figures for the accrual basis when changed to cash basis. Please check.
Please illustrate with screenshots.
The principle is very simple. If you use invoices then you are using accrual accrual basis. So when you say you changed to “cash basis” this would imply that no invoices ever existed. Let me explain, an invoice usually represents a payment obligation either to a Supplier or from a Customer at a future date. having straightforward cash sales and purchases only requiring receipts and payment “vouchers” would apply for cash accounting. Sorry for simplifying it this way but that is how it was meant to be.
Thanks @eko, I pefectly understand how it works. The invoices, both the sales and purchase are working ok. I should have been more specific. I believe that the principle should work tje same when it comes payslips and Journal entries meant for third party liabilities allocated to any expense account.
Correct me if am wrong, a payslip will record a liability which in this is a salaries payable account just as a purchase invoice does while allocating the other leg to an expense account to complete the double entry.
At this point, no movement of cash is recorded.Therfore this expense is accrued. So for exaple if only half of the employee are paid for that particular month , the expense using cash basis should show only the half paid to employees. But, whats happening that payslips and journal transaction are not picking the cash basis principal as it were. Am @Tut am struggling making screeb shot. Padon me.
You are correct on this specific statement.
You are incorrect on this point. Under cash accounting, no accruals exist. Even if an invoice has been entered, that is really only for convenience. The income or expense is not recognized.
Technically, you should only use payslips under cash basis accounting if you are making payments to your employees simultaneously (or at least before the end of the accounting period). While the program functions if you create payslips under cash basis accounting, the results are not really accurate.
The fact is, once you move beyond a simple cashbook recordkeeping system, you really should be using accrual basis accounting. Manager does not, in fact, switch between cash and accrual basis accoutning. It is, at its core, an accrual basis system with optional cash basis reporting. But you need to understand the limitations of cash basis accounting if you use the program in that mode. You should really modify your data entry procedures so transactions are only entered when money changes hands. Only sales and purchase invoices really let you separate the functions in time without introducing misrepresentations.
Thanks @tut for that insight. Well the background is that I am managing a non governmental project for three years now. The programe is funded every year. The budget of income and expenditure is submitted every year for a possible funding.
In the course of the year we continue to generate payslips every month. This means that we would record liabilities in terms of unpaid salaries which maybe be behind five months as a result of let funding.
Now, this trasaction in accrual basis is immediately recognised in the P&L. Then when the fundind is received, some arrears for unpaid months are settled leaving a balance.
When time comes to do a budget, we use the Actual vs budget in cash basis. What is expected is that only cash paid towards dismantling of arrears should be recognised in the P& L for the budget. So the system only recognise the accrued basis amount even when you use the the cash basis.
It is the same case scenario with the journal entries meant to record liabilities from third parties. For example, we had a penalty from one of our pensions schemes for non remmittance contributions . This was recorded using a journal as follows;
Dr penalty expense account
Cr penalty clearing Liability account
Then when doing a part paying, we credit cash and debit the clearing account.
In the same vein, using tje journal and accual basis the amount is recognised immediately but using the cash basis the same amount shows in cases of a part payment. I am required to present only actual cash used vs budgeted and not the accrued expenses for the period.