I have following workflow for accounting of payroll and expenses.
Expenses:
(1) I have a supplier for which I raise invoice (e.g. March rent). Date on invoice 2020-03-31
(2) I pay said invoice in April.
Payroll:
(1) I have an employee A, for which I create payslip for March salary. Date on payslip is 2020-03-31
(2) I pay said payslip in April.
Now I am creating P&L report. Using accrual basis.
I have Rent and Payroll expenses correctly reflected in March 2020, as it is period to which those relate.
I switch to cash basis, and now I have Rent expense shown in April (correct, as payment was made in April and invoice date is irrelevant). However Payroll expense is still shown in March 2020, but my understanding is that it should be reflected in April 2020, when payment was made. Even more, if I delete payroll payment (i.e. no cash movement), payroll expense is still shown and reflected in March.
Do I miss something and Payroll is handled different to Sales/Purchases?
An important—but often overlooked—aspect of switching between accrual and cash basis accounting involves the change in philosophy of when income and expenses are recorded, not just when they are received or paid. Manager is, at its core, an accrual basis system with options for cash basis reporting. But if you intend to use cash basis accounting, you need to adapt your procedures for when you record expenses.
In your example of paying an employee in April, you should not enter the payslip until April, then immediately pay the employee. You are right to guess that payroll is somewhat different. A payslip tells the program that you have incurred expenses for wages or salaries. These debit an expense account and must be matched by a credit to a liability account, Employee clearing account. But no money has moved. So there should really be no entry at all if you are not paying the employee.
Technically, a purely cash basis balance sheet would not include accounts like Accounts receivable or Employee clearing account. But many of Manager’s functions would then not work. So the cash/accrual options primarily affect sales and purchase invoices.
The end result is that switching back and forth produces results results inconsistent with what you would see if you were actually following cash basis accounting procedures. This is one reason that accounting standards generally do not cover cash basis accounting. The method simply cannot fully represent your position and performance.
Aha, understood. Actually I am using accrual basis. But need to prepare from time to time actual vs. budget report, however using cash basis (at our current stage we are more focus on cash flow).
As there is only a possibility to automatically populate actual vs. budget report for p&l, and not for cash movent reports, I was trying to utilize accounting basis switching for that purpose, especially after seeing that sales/purchase invoices were following my assumed logic.
Thanks for explanation, I guess I will utilize anyway cash basis p&l and will do adjustments for payroll expense in Excel (those looks like should be straightforward).
For your purpose, also consider the Receipts & Payments Summary report. It is not what some would consider a full cash flow report, but it might fill your needs.