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Cash Basis Accounting

edited March 25 in Pinoy Careers
i have basic knowledge on cash basis accounting but i am still confused with some concepts or processes. i've tried to conduct a research but accounting books do not discuss this in detail. so, i would like to seek the help of experts here.

1) i know that revenues are recorded when cash is received. but, how will the company record a transaction when merchandise is sold on credit?
2)when a company borrows money from a bank, it is an inflow of cash, will it be considered a revenue and how will it be recorded?
3)does the company record transaction when cash is involved?
4)how is cash basis accounting converted to accrual and vice-versa?

Comments

  • i have basic knowledge on cash basis accounting but i am still confused with some concepts or processes. i've tried to conduct a research but accounting books do not discuss this in detail. so, i would like to seek the help of experts here.

    1) i know that revenues are recorded when cash is received. but, how will the company record a transaction when merchandise is sold on credit?
    2)when a company borrows money from a bank, it is an inflow of cash, will it be considered a revenue and how will it be recorded?
    3)does the company record transaction when cash is involved?
    4)how is cash basis accounting converted to accrual and vice-versa?

    some short answers:

    1) nothing. cash accounting only records something when there is a cash flow
    2) uhhm, payable?
    3) always when cash accounting is used
    4) rough answer: constructive accounting

    :D

    oh and, correct me if im wrong :) thx
  • mac_bolan00mac_bolan00 PEx Veteran ⭐⭐
    i'm not an accountant so i can't helpyou with accounting entries. but for managerial accounting and the so-called "two-book" system practiced by our tax-cheating countrymen in binondo, cash-basis simply records actual entry of cash and good-as-cash items such as manager's checks and goods.

    take the case of a sari-sari store. your general cash flow for a period will look like this:

    cash from sales for the period
    + collections from past credit sales
    + interest on deposits
    + loans proceeds, if any
    + equity infusion, if any
    total cash in for the period [1]

    cash purchases for the period
    + payment for prior purchases on credit
    + payment for current and accrued bills
    + actual interest and principal payments on loan
    + withdrawals
    total cash-out for the period [2]

    1 + 2 = net cash for the period

    that's why small businessmen, when studying their cash flow, look at only their passbook and checking account balances. their TDs and ADBs will already give them their net cash flow.
  • mac_bolan00mac_bolan00 PEx Veteran ⭐⭐
    1) i know that revenues are recorded when cash is received. but, how will the company record a transaction when merchandise is sold on credit?
    it stays off the income statement and is simply put in the balance sheet as a collectible.
    2)when a company borrows money from a bank, it is an inflow of cash, will it be considered a revenue and how will it be recorded?
    it is still a liability.
    3)does the company record transaction when cash is involved?
    ???
    4)how is cash basis accounting converted to accrual and vice-versa?
    revenue recognition changes from actual cash collection to actual delivery of goods.
  • so, the company records transactions only when cash is inlvolved? does in mean that the company does not have a transaction when, for instance, it buys inventories on account? if the company does not record it, baka makalimutan na may utang pa pala siya.

    i encountered a balance sheet based on cash basis. it contains on the assets side "supplies." i wonder why it is in there while when that was bought with cash, it was considered an expense. i suppose it was was recorded this way:
    dr. supplies expense
    cr. cash
    the balance sheet based on cash basis accounting should not contain supplies on asset side. i just don't know how to reconcile this case.
  • hmm...modified cash basis?
  • mac_bolan00mac_bolan00 PEx Veteran ⭐⭐
    i encountered a balance sheet based on cash basis. it contains on the assets side "supplies." i wonder why it is in there while when that was bought with cash, it was considered an expense. i suppose it was was recorded this way:
    dr. supplies expense
    cr. cash
    the balance sheet based on cash basis accounting should not contain supplies on asset side. i just don't know how to reconcile this case.
    supplies are expensed out only when they have been sold (either straightaway as merchandise or converted/manufactured and then sold)

    the "expense" defintion on the debit side is wrong.
  • so, the company records transactions only when cash is inlvolved? does in mean that the company does not have a transaction when, for instance, it buys inventories on account? if the company does not record it, baka makalimutan na may utang pa pala siya.

    i encountered a balance sheet based on cash basis. it contains on the assets side "supplies." i wonder why it is in there while when that was bought with cash, it was considered an expense. i suppose it was was recorded this way:
    dr. supplies expense
    cr. cash
    the balance sheet based on cash basis accounting should not contain supplies on asset side. i just don't know how to reconcile this case.

    maybe, if it were on credit, you just record it in the ledgers, not on the journals. kumbaga e, "listahan"

    you only fully record transactions if it involves cash.

    as for the supplies, maybe it's a prepayment

    dr. prepaid supplies
    cr.cash
  • so, the company records transactions only when cash is inlvolved? does in mean that the company does not have a transaction when, for instance, it buys inventories on account? if the company does not record it, baka makalimutan na may utang pa pala siya.

    i encountered a balance sheet based on cash basis. it contains on the assets side "supplies." i wonder why it is in there while when that was bought with cash, it was considered an expense. i suppose it was was recorded this way:
    dr. supplies expense
    cr. cash
    the balance sheet based on cash basis accounting should not contain supplies on asset side. i just don't know how to reconcile this case.

    try ko lang...

    ano ba ang nature ng Supplies na binili/binayaran??? Supplies na held for resale o Supplies na kinoconsume sa loob ng business???

    kung merchandising concern ang business, at yung supplies na sinasabi mo e yung merchandise na binibili para ibenta ulit, hindi supplies ang account kundi Inventory...

    To record the acquisition of Inventory,
    Dr. Inventory, Cr. Cash/Accounts Payable (kung inutang)

    kung Supplies as in Supplies na ginagamit sa loob ng business at di binebenta, idedebit sa Prepaid Supplies... kapag ginamit na yung Supplies, ine-expense na...

    To record the acquisition of Supplies,
    Dr. Prepaid Supplies, Cr. Cash/Accounts Payable

    To record the usage/consumption of the said Supplies,
    Dr. Supplies Expense, Cr. Prepaid Supplies

    ewan ko lang kung tama...
  • schumi wrote:
    maybe, if it were on credit, you just record it in the ledgers, not on the journals. kumbaga e, "listahan"

    you only fully record transactions if it involves cash.
    paano yun, saan ia-against ang pagrerecord ng mga kautangan??? e di naman pwede sa cash di ba dahil wala pa namang natatanggap na pera???
  • try ko lang...

    ano ba ang nature ng Supplies na binili/binayaran??? Supplies na held for resale o Supplies na kinoconsume sa loob ng business???

    kung merchandising concern ang business, at yung supplies na sinasabi mo e yung merchandise na binibili para ibenta ulit, hindi supplies ang account kundi Inventory...

    To record the acquisition of Inventory,
    Dr. Inventory, Cr. Cash/Accounts Payable (kung inutang)

    kung Supplies as in Supplies na ginagamit sa loob ng business at di binebenta, idedebit sa Prepaid Supplies... kapag ginamit na yung Supplies, ine-expense na...

    To record the acquisition of Supplies,
    Dr. Prepaid Supplies, Cr. Cash/Accounts Payable

    To record the usage/consumption of the said Supplies,
    Dr. Supplies Expense, Cr. Prepaid Supplies

    ewan ko lang kung tama...

    in cash basis accounting, a transaction is recorded only if cash is involved. how about if the company purchases inventory on credit. will the company record it?
  • paano yun, saan ia-against ang pagrerecord ng mga kautangan??? e di naman pwede sa cash di ba dahil wala pa namang natatanggap na pera???


    like i said, meron lang silang listahan para sa mga pagkakautang

    :)
  • ^^^ ahh, so saka na sila nagrerecognize ng Sales kapag bayad na???

    [qoute=nocturnalbabe]in cash basis accounting, a transaction is recorded only if cash is involved. how about if the company purchases inventory on credit. will the company record it?[/qoute]

    nope, not yet... although kelangan mong i-keep yung mga ganong transactions, di mo pa siya pwedeng gawan ng journal entry o i-post sa ledger hanggat wala ka pang natatanggap na pera... cash basis accounting does not recognize payables, receivables and prepaid expenses... revenues and expenses are recognized when cash is paid...

    kung iku-convert mo ang cash basis sa accrual, e di magrecognize ka lang ng payables and receivables...
  • Try to get a copy of FINANCIAL ACCOUNTING by Valix and Peralta... The discussions there are quite extensive. Nasa Volume 2 ang CASH FLOW STATEMENT.
  • meron akong mga ganong libro, nabibili iyon sa Recto... yun yung textbook na ginamit namin sa school last year, second sem... the thing about accounting books is that andaming nadadagdag-nababawas taun-taon... like for instance, last year sa Financial Acctng. I ni Valix, kasama pa ang LIFO basis of inventory estimation/pricing... ngayon, hindi na, kasi nirevise na naman ang PAS [dating SFAS]...

    saka dalawang libro pa bibilhin, parehong makakapal... ayaw mo bang mag-aral na lang ulit ng Accountancy... o kung pwede, magtake ka lang ng ilang subjects:

    Basic Accounting I (Basic Accounting and Accounting for Sole Proprietorship)
    Basic Accounting II (Accounting for Parrtnership and Corporation)
    Financial Accounting I and II (Practical Accounting 1)
  • meron akong mga ganong libro, nabibili iyon sa Recto... yun yung textbook na ginamit namin sa school last year, second sem... the thing about accounting books is that andaming nadadagdag-nababawas taun-taon... like for instance, last year sa Financial Acctng. I ni Valix, kasama pa ang LIFO basis of inventory estimation/pricing... ngayon, hindi na, kasi nirevise na naman ang PAS [dating SFAS]...

    saka dalawang libro pa bibilhin, parehong makakapal... ayaw mo bang mag-aral na lang ulit ng Accountancy... o kung pwede, magtake ka lang ng ilang subjects:

    Basic Accounting I (Basic Accounting and Accounting for Sole Proprietorship)
    Basic Accounting II (Accounting for Parrtnership and Corporation)
    Financial Accounting I and II (Practical Accounting 1)

    saan sa recto? how much kaya ang mga yun? may mabibili din ba nyan sa national bookstore?

    thanks
  • meron akong mga ganong libro, nabibili iyon sa Recto... yun yung textbook na ginamit namin sa school last year, second sem... the thing about accounting books is that andaming nadadagdag-nababawas taun-taon... like for instance, last year sa Financial Acctng. I ni Valix, kasama pa ang LIFO basis of inventory estimation/pricing... ngayon, hindi na, kasi nirevise na naman ang PAS [dating SFAS]...

    saka dalawang libro pa bibilhin, parehong makakapal... ayaw mo bang mag-aral na lang ulit ng Accountancy... o kung pwede, magtake ka lang ng ilang subjects:

    Basic Accounting I (Basic Accounting and Accounting for Sole Proprietorship)
    Basic Accounting II (Accounting for Parrtnership and Corporation)
    Financial Accounting I and II (Practical Accounting 1)

    valix's books are treasures. kahit na ba makakapal yung mga yun, ang sarap basahin :) well-written.

    as much as possible, buy the latest editions. kasi, pabago-bago ang mga standards to harmonize with the international standards :)
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