Understanding Cash Basis Accounting

Cash basis accounting is an accounting method that recognizes revenue when monies are received and expenses when monies are paid out. This accounting method shows only cash that is actually received or disbursed during a particular accounting period. You might be required to use cash basis accounting due to a requirement in an oil well lease, venture capital, or partnership.

The timing of receipts and disbursements might differ from the period of operating activities. Therefore, the period during which cash basis transactions are recorded might differ from the period during which transactions are recorded for accrual accounting.

The system maintains accrual entries in the AA (actual amount) ledger. When you use cash basis accounting, the system generates parallel transactions from the AA ledger and updates the AZ (cash basis) ledger.

You create cash basis entries by running the Create Cash Basis Entries program (R11C850) or by activating the cash basis processing option in the General Ledger Post program (R09801). You must understand how the system creates cash basis entries for the JD Edwards EnterpriseOne General Accounting, JD Edwards EnterpriseOne Accounts Payable, and JD Edwards EnterpriseOne Accounts Receivable systems to determine the best business practice for running the program.

Note: If you run the Create Cash Basis Entries program after you reconcile statements and accounts, set the Reconciliation code processing option in the Create Cash Basis Entries program to 1 to copy the reconciliation code and cleared date for the reconciled statements and accounts from the AA ledger to the AZ ledger.