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Using TurboCASH

 







ADJUSTMENTS
CASH AND ACCRUAL BASIS ADJUSTMENTS
  
There are two basic accounting methods that will determine when income and expenses are recognised and used to determine the profit or loss of a business. They are the cash basis and the accrual basis of accounting. Once you have selected to use the cash or the accrual basis, you need to be consistent with the selected method for tax purposes. The basic principles of each of these accounting methods are as follows:

Cash-basis Accounting Method:

The income is recorded when the money is received (not when you invoice a debtor or a customer) and the expenses are recorded only when the expenses are paid for (and not when you actually receive the bill or the supplier invoice from your customer or supplier). This is mostly used for private accounts. According to this method you will only need to do adjustments to correct errors, to record depreciation, to write off bad debts, etc.

 

B> Accrual-basis Accounting Method:

Income is recorded as soon as when a debtor or customer is invoiced, irrespective of when the money is received. The expenses are recorded once the bill or the supplier invoice is received from your creditor or supplier) and not when the bill is paid. This method is more accurate than the cash-basis accounting method and the income and expense patterns in a business can be projected and managed more effectively. The income and expenses are recorded before they are received or paid.

If you are using the accrual-basis accounting method, you need to make certain adjustments to correct your income and expenses to reflect the actual income and expenses for the accounting period or financial year. You would need to enter adjustment transactions to record accrued or arrears income received and income received in advance, arrears expenses, prepaid expenses, provisions for bad debts, etc. These adjustments may be in addition to the normal adjustments to correct errors, to record depreciation, to write off bad debts, etc.

Each of the adjustments if you use the accrual-basis accounting method needs to be made before you perform a year-end procedure in the Tools - Global Processes - Do Year-end menu option.

The cash-basis or accrual-basis accounting methods basically work on the same principles as the payments-based or invoice-based VAT accounting basis if you are registered as a VAT Vendor.