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Difference between Cash Basis and Accrual Accounting

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Our system is a true accrual accounting system.

 

There is a big difference between a cash basis system and a real accrual accounting program. 

Enterprises (as well as associations) use an accrual accounting system, it must never be a cash basis method.

 

Let's give an example of both methods.

 

Cash system:

•Revenues are recorded as they are collected.
•Expenses are recorded as they are disbursed (like in our own personal finance)

 

Accrual system:

•Revenues are recorded as they are charged, no matter if they are collected or not after. 
•Expenses are recorded when receiving the invoices or when due, no matter if they are paid immediately or not.

 

So, when something is due to the association (like common fees or special assessments), they are charged to owners.  Later on, owners will eventually pay their balance. If they don't, the association will try to collect it using all legal means and if it is not possible, it will record a bad debt expense (what is called a ‘’write off’’ in the accounting jargon). 

 

We manage receivables this way.  We charged owners when it is due and record their payments when collected. The balance stays due till it is paid completely unless written off to bad debts. We never reverse the revenue already recorded when the charges were processed. 

 

As an example, a bank will process your purchases on your credit card. They will not wait for your payment before processing them.   They use an accrual system. 

They have a receivable and they post your purchases as soon as they get the details. 

Later on, you will pay your credit card partly of totally.  If you don’t pay, they will process a ‘write off’ of the amount as a bad debt.

 

Notice also that the bank statement will not break up the categories of purchases you have done and they will not break down you payment to apply it on the different categories of purchases.  You owe something to the bank (everything you owe is listed). You receive the statement from the bank, you pay it back.  You payment is substracted from your balance as is.  It will not be broken down.  

 

 

Comments

Nonetheless, we try to give to all our customers the tools they want to manage their association. 

Of course, we can't change the international accounting rules and the balance sheet will always ressemble to a real and legal balance sheet. 

 

However, we could produce other documents that could give you the information the way you want it. 

We have already around 300 reports available in the system.  May be, you have a few that could fulfill some of your needs. 

 

I would suggest you give a look to what is already available to see if some of the numerous reports could give you the information you require.  We could establish what are the other needs and we could analyse the way it could be developped and when.