Читать книгу Financial Accounting For Dummies - Maire Loughran - Страница 73

The last subject in this section of the chapter briefly discusses the underlying factors of the statement of cash flows (see Chapter 11). While concentrating on the accrual method of accounting, your financial accounting course talks about the cash method as well. So, knowing the nuts and bolts of converting cash to accrual revenue and payments will make both the theory and preparation of the statement of cash flows more understandable.

Small business owners will find this helpful as well. You may have just blundered into using a method of accounting without realizing there are two or three if you count the tax method. Or maybe you have a bookkeeper or accountant running your numbers, and they have made the decision for you.

Before I present my handy guide to converting cash to accrual, you may find it helpful to check out Chapter 6, where I expand on cash, accrual, and tax.

Following is a rundown of the cash and accrual methods, with a brief explanation of how the Internal Revenue Code can affect both.

 Cash method: Revenue is recorded when it is received, and expenses are recorded when they are paid. The effects of accounts receivable and accounts payable are eliminated.

 Accrual method: The opposite of cash, you record all revenue when it is earned and realizable. Expenses are recorded when they are incurred. Accounts receivable and accounts payable are definitely a part of this equation! Costs and expenses are not the same. Financial accounting uses the matching principle (see Chapter 12). The cost of buying something like inventory does not record on the income statement until it can be matched — that is, used to create revenue. Chapter 13 give you a good walkabout on the matching principle, too.

 Tax: I’m adding this in for you small business owners so that you know what’s going on when your bookkeeper or accountant starts blathering on about GAAP versus tax. In the United States., tax returns are filed using the constraints of Internal Revenue Code.A fantastic example of this at work is entertainment expense. Generally, the cost of taking clients out to dinner is expensed 100 percent, but Internal Revenue Code allows only a 50 percent deduction. That means for a meal costing $75, you are able to deduct only $37.50 on your business tax return.

Ready to go? Figure 3-5 is my handy cash to accrual conversion guide.

FIGURE 3-5: Cash to accrual cheat sheet

Making Figure 3-5 come alive with numbers, in May Tom & Cindy received $5,000 in cash from customers. On May 1, accounts receivable was $1,245. On May 31 accounts receivable was $980. May revenue earned is $4,735 ($5,000 –$1,245 + 980).