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Being involved in accounting training, it is important to learn and practice major topics which will give you basic knowledge and understanding of main accounting principles. One of such topics is cash basis revenue accounting covering revenue recognition principles which are closely related to the cash receipt moment rather than to the actual sale of goods or provision of services.

Essence

Revenues in the books of the business can be recognized applying two main methods, i.e.:

accrual accounting method cash basis accounting method

Accrual method requires revenues to be recognized when sale of goods or provision of services occurred, i.e. ownership title to the goods was transferred from seller to the customer or customer accepted services provided. Such moment means the seller has a right to claim payment from customer for the goods sold, services provided despite the fact whether cash for sale was paid or not. Applying this principle advances received are not recognized as revenues, if no cash is received at the moment of sale revenue recognition is not postponed. This method will also cause recognition of advances received (if cash is paid up front before the sale) or accounts receivable (if cash is paid after the sale).

Cash basis method requires revenues to be recognized only when cash was received. In case customer makes payment in advance, such advance will be recognized as revenue without taking into account the fact that goods were not yet sold or services were not yet provided. In case customer pays later after the sale occurred revenues will be recognized only when cash is received.

Applying cash basis revenue recognition method financial statements will not present the right of the seller to claim payment from customer which is done in the form of accounting for accounts receivable when accrual accounting principle is applied. So no there will be no fair presentation of assets.

Examples

Some examples can demonstrate how cash method is applied in practice.

Example 1. Assume business sold goods for $5,400 on March 15, cash will be received on April 20. Applying cash basis revenue accounting method, revenues will be recognized only on April 20, i.e.

D Cash $5,400

C Sales Revenue $5,400

Example 2. Assume business sold goods on March 15, part of cash was received in advance on February 17, i.e. $1,300. Remaining part of cash will be received on April 20.

Since revenues are recognized when cash is received in February advance received will be recognized as revenue, i.e.:

D Cash $1,300

C Sales Revenue $1,300

Remaining part $5,400-$1,300=$4,100 will be recognized as revenue in April, i.e.:

D Cash $4,100

C Sales Revenue $4,100

In case customer will fail to pay its debt, no sales revenue will be recognized at all.

Cloud accounting software is that which allows users to operate computer programs over an Internet connection. Provided that users have regular and reliable web access, the benefits of this type of browser-based software are numerous as it saves time, money, hard drive space and much more.

Implementing “clouds,” or secure spaces designated for an operation’s data, cloud accounting requires no program installation, making it potentially accessible from any computer. In this highly mobile, fast-paced world, it’s of ever-growing importance that accountants are able to retrieve information without missing a beat, a luxury that cloud accounting affords. Unparalleled by traditional accounting software, the ability of a user to work on the same project in the office, at home or in the airport makes it the most convenient alternative.

More and more technology firms are developing their own cloud accounting solutions every year, which also makes it an increasingly viable option. Most software is available on a subscription or usage basis, meaning that users can try different programs before making any long-term commitments and plunking down a lot of money upfront, as most conventional software requires. In addition, cloud accounting is a low-overhead solution, since program upkeep is often performed by the software’s service provider.

Many cloud programs are customizable and able to fit the individual needs of their users, resulting in peak performance levels. They are also the safest way to store information, requiring unique passwords to access uploaded data and eliminating the risk of losing data since it can be accessed from anywhere. Since cloud software makes use of the Internet and third-party servers, it’s virtually limitless data storage capabilities are unmatched by those programs installed on a system’s hard drive.

As the global marketplace continues its migration to the Internet, it’s clear that cloud accounting software is the most-sensible option when choosing how to manage shared information safely and efficiently while maintaining on-demand access capabilities.

The organization, analysis and record keeping functions provided by accounting software is helpful for every modern business. Keeping track of daily business is now more important than ever and requires a powerful solution to help avoid errors. The automation of accounting functions allows any company to streamline accounting efforts, keep track of income and expenses, and manage accounts receivable collections. These functions work together to help reduce or eliminate fixed business costs and will save your company money.

Easy Transaction Entry

Knowing how much money is available at any given time to meet payroll expenses or investments is an important business element that must always be accurate. Mistakes can and do happen with employees that try to maintain daily accounting information. Modern accounting software includes safeguards to protect entered data from mistakes or errors. Both debit and credit transactions are automatically checked to make sure that there are no data entry errors. This helps to save time and money by not requiring additional data entry work.

Payroll Processing

Traditional payroll processing efforts required a full-time or part-time bookkeeper to manage company payroll. These professionals are accurate, but can be expensive for a small business. Accounting software is designed to offer effortless payroll processing. Time sheet information is entered along with the rate of pay and the software makes the calculations. The deductions and other taxes can be customized and instantly subtracted from paycheck totals. Most software packages include options for direct deposit or online payroll functions for a small add on fee. This creates a substantial savings for your company in payroll processing costs.

Accounts Payable

The average business owner has contracts that are used to purchase materials, supplies and services to maintain daily business operations. Payment is typically made on a credit basis with the promise to pay at a later time period. Keeping track of what invoices to pay can be a burden for a company that deals with multiple vendors and business clients. Modern accounting software keeps the accounts payable process organized to eliminate the risk of late payments and interest charges to save your company money.

Tax & Financial Reports

The close of a monthly accounting period or fiscal year can be a stressful experience. Attention to detail and financial accuracy are extremely important to make sure that important financial information is analyzed and reported correctly. By using accounting software, the organization of documents, receipts and reports used for tax reporting and financial statement creation is fast and easy. This eliminates the need to hire a bookkeeper or temporary worker to complete this quarterly and annual accounting work.

The purchase or upgrade of an accounting software package is an excellent way to reduce company operating costs.

Have you ever desired to work with numbers? If multitasking within an office setting, going through fine details and other accounting-related duties sound appealing, then looking into accounts receivable (AR) jobs can be a career move for you. Duties entailed in accounts receivable jobs are the receipt and posting of payments to some company’s account, generating as well as mailing invoices to clients, data entry, maintaining a collection record of overdue records, examining and making an aging report along with other tasks related to incoming money. Occasionally, AR jobs may include secretarial or clerical duties such as photocopying, reception duties and filing. Anyone who has an eye for details, capable of taking on multiple duties, like working in an office setting and may meet deadlines with no problem are good candidates for most AR jobs. A person does not need a four-year degree to obtain this jobs but vocational training or an Associate degree is helpful. These days, most employers prefer that their support staff has some formal education running a business procedure.

Working understanding of software applications is strongly desired too. Like most administrative support positions, the independent capability of using word processing and spreadsheet programs would be the core requirements for the majority of receivable jobs. Knowledge of databases is really a plus as well as having the ability to navigate the internet for research and relevant information. AR jobs are usually found in mid-to-large sized companies by having an on-site accounting or finance department.

The working hours are usually during normal business hours and depending on the company, may offer overtime with an as-needed basis. With respect to the nature of the business and also the duties involved. Accounts receivable jobs average $30,000 annually. Those with many years’ experience and/or a diploma can expect to make noticeably more per annum. Even in this economy, accounts receivable jobs are one of a few stable careers that don’t need a lot of formal educations.

Have you ever been baffled by accounting types telling you that a certain expense has been accrued? Some time ago I told someone about accrual of her expenses, and she was offended. I had to tell l her that to accrue something was not a horrible thing… Basically, to accrue an expense is to recognize a transaction before it has been paid or entered in the accounts payable system. In order to be accrued, an expense must have occurred during this period. If you used a service or purchased goods to be used now, then you recognize that expense now.

Accruals are usually made when books at closed, sometimes every month and for sure at year-end. Examples of accrued expenses could be:

* Payroll for work performed this period, but paid in the future — VERY COMMON

* Commission for sales that happened now, but will be paid in the future

* Utilities used this period, but paid in a following period

* Purchases for paper to be used this period, but paid in the future

* Expenses for an event that happened this period, but paid in the future

The point is to recognize the expense in the income statement, matching it with revenue for the same time period.

Oftentimes accountants estimate accrued expenses. This may happen when they don’t know how much these expenses will cost. Accountants usually look at accrued expenses of a prior period to make sure they don’t forget any transactions. If they notice expense accruals for insurance, for instance, then they know that they may have insurance expenses out there to be accrued.

Sometimes business people get confused between budget numbers and accruals. You do NOT accrue an expense just because you budgeted for it. You accrue an expense because the transaction actually happened during the period. This means that budget versus actual expenses variances may be explained by accrued expenses.

Technical Details

For the technically minded, below is the journal entry to book an accrued expense:

Debit — Different types of expenses reporting in the income statement

Credit — Liability accrued expense account, reporting in the balance sheet

When the accrued expense is paid, the journal entry is:

Debit — Liability account

Credit — Cash

A common problem is to book the expense in the accrual and again when the bill is entered in the accounts payable system. To avoid this double-booking, the original accrual entry is reversed as the bills are paid. This can be time-consuming and error-prone, but it is the traditional way to avoid recognizing the same expense twice.

My friend, who had graduated from a school in Phoenix as an accountant, was trying to decide which field of accounting to pursue for his Master’s degree. If you are interested in becoming an accountant or simply learning more about the occupation, here is some information you might find useful.

Generally speaking, accountants and auditors help businesses and firms run efficiently, maintain accurate records, and pay their taxes properly. Within accounting, there are four main fields of specialization: management accounting, internal auditing, public accounting, and government accounting. Management accountants, typically part of an executive team for product development or strategic planning, record and interpret the financial information of their company.

They set budgets, evaluate performance, prepare reports, do cost and asset management, and help the company reach sound business decisions. Internal auditors are similar in that they ensure the accuracy of their company’s records and internal controls but are more focused on reviewing company operations to verify that they comply with company and government policies.

Public accountants have a range of accounting, auditing, consulting, and tax duties they perform for their clients, depending on their particular area of training. For example, some accountants are external auditors who are hired by various businesses and organizations to review their financial statements and make sure they are accurate. Forensic accountants, on the other hand, study financial records to uncover illegal activities like fraud.

Finally, government accountants work for government agencies rather than private companies. They audit businesses and individuals subject to regulations and taxes. Some may work in the Internal Revenue Service, for example. Within each main field there are multiple ways you may specialize further, but selecting one that appeals to you will help you to narrow your choices.