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Accrual Accounting | Cash Basis Accounting |
Creation of transactions such as invoices, debit memos, deposits and chargebacks affect the account balances immediately. | There is no effect on the account balances until payment is received to close the transactions. |
Accounting Rules may be used to recognize revenue across different periods. | Accounting Rules are redundant as revenue will be recognized only when payment is received. |
Receipts can be reversed using the Standard Reversal or Debit memo reversal. | Receipts can be reversed using the Standard Reversal only. Debit Memo reversal is not permitted. |
Automatic receipts such as Direct Debits and Bills of Exchange affect the cash balance only when the receipts are cleared. | Automatic receipts affect the cash balance on the maturity date, if the GL date = maturity date or on the GL date, if the GL date is after the maturity date. |
Deposits and Guarantees both affect on-account balances in Receivables. | Guarantees do not affect on-account balances since there is no exchange of cash. In the case of deposits, the cash collected on deposits will be posted to the revenue account of the deposit instead of that of the invoice against the deposit. Use the Other Application report to view all invoices against deposits. |
Table 1 - 97. (Table 1 of 1) |
Consider an example of an invoice created for $1000, followed by an adjustment for $100. The full amount of $1100 is paid off. The following journal entry is created when cash is received:
DR | Cash | $1100 | |||
CR | Revenue | $1000 | |||
CR | Adjustment | $100 |
DR | Cash | $1100 | |||
CR | Revenue | $1000 (Original amount) | |||
CR | Revenue | $100 (Adjustment) |
DR | Cash | $1100 | |||
CR | Line #1 Revenue | $800 | |||
CR | Line #2 Revenue | $200 | |||
CR | Adjustment | $100 |
DR | Cash | $1100 | |||
CR | Line #1 Revenue | $800 (Original amount) | |||
CR | Line #1 Revenue | $80 (Adjustment) | |||
CR | Line #2 Revenue | $200 (Original amount) | |||
CR | Line #2 Revenue | $20 (Adjustment) |
Consider an example of an invoice for $2000. If you make an adjustment of -$200 to it, there will be only one journal entry at the time of receipt of cash:
DR | Cash | $1800 | |||
CR | Revenue | $1800 |
DR | Cash | $800 | |||
CR | Revenue (invoice) | $800 |
DR | Cash | $200 | |||
CR | Chargeback Adjustment | $200 |
An on-account credit will be posted when it is applied to an invoice or combined with a cash receipt.
Consider the journal entries created in the following instances:
An on-account credit is issued. No journal entry is created.
The on-account credit is applied to an invoice for $100.
DR | Revenue (on-account credit) | $100 | |||
CR | Revenue (invoice) | $100 |
DR | Cash | $200 | |||
CR | Unapplied Cash | $200 | |||
DR | Revenue (on-account credit) | $100 | |||
CR | Unapplied Cash | $100 |
DR | Unapplied Cash | $300 | |||
CR | Revenue (Invoice) | $300 |
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