The accrual basis of accounting was discussed in Chapter 4, Basis of Accounting. All transactions are recorded when they happen, not when money is transacted.
Many types of firms either extend credit, or the nature of their business is such that all work is billed during or following work is completed. A retail store generally accepts money, checks, and credit cards, and some may have “house charge accounts” where the business itself extends credit and accepts payment after the sale. Some service businesses, such as accountants and graphics designers, complete their service, but bills won't be sent till all the hours and costs are determined and totaled.
Accounts receivable consist of sales or services that are billed, but not picked up. All receivables must be accounted for, irrespective of what system of accounting is employed, to assure that they are tracked and collected. In manual systems, just an alphabetical file or list of consumers ‘ accounts will do.
If you use the accrual system of accounting, your accounts receivable will be included on your finance reports. The sales, or revenue, will be recorded on the books when the sale is created, not when the money is received. When the money is received, it decreases the quantity of the receivable from the purchaser.
When you use the accrual basis, you may give your accountant a catalogue of receivables at the end of the accounting period that you're preparing statements for (monthly, quarterly, yearly), and they will include the accounts receivable on your financial statements.
Many companies use the accrual foundation for their finance statements, but the cash basis for their business tax assessment if they qualify. This way, if the business is making money and has more receivables than payables, you will not be paying taxes on money that you have not yet collected.
If doubtful then talk to your qualified accountant today.
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