3.0 Accrual Accounting

Modified on Fri, 24 Oct at 12:47 PM

What is Accrual Based Accounting?

The general concept of accrual accounting is that economic events are recognized by matching revenues to expenses (the matching principle) at the time when the transaction occurs rather than when payment is made or received.

In the Company setup window you will find a field for Accrue WIP Entries.

Normally when you place an item onto an open work order no GL entries are made until that document is invoiced. And when you receive a PO no GL entries are made until it is processed through AP Invoice Entry.

But if this box is checked in Company setup this indicates that you want to use accrual based accounting.

In the Chart of Accounts you will need a WIP account and an accrual account for PO receiving. (for these accounts the WIP Account field and the Accrue PO Account field should be left blank)

Then for each account that you will need to record a WIP entry or a PO Accrual entry for you will need to populate the fields for WIP Account and/or Accrue PO Account

For example: Parts Inventory would need to have the WIP Account populated to record WIP entries to. It would also need to have the Accrue PO Account populated to identify where the GL entry should be made at the time of receiving Purchase Orders.

Once these are set up there this is how you can expect your transactions to post to the GL:

If both fields from the Chart of Accounts are being considered:

Process	Debit	Credit
Part is placed on open work order as backordered item	No GL entry is made	No GL entry is made
Place Backordered item on PO	No GL entry is made	No GL entry is made
Receive PO	WIP Account (+)	Accrued PO Acct (-)
AP Invoice Entry using PO Import	Accrued PO Acct (+)	Payables (-)
Work Order is Invoiced	Cost of Sale Acct (+)	WIP Account (-)

Process	Debit	Credit
Part placed on PO as stock item	No GL entry is made	No GL entry is made
Part is received on PO	Parts Inventory (+)	Accrued PO Acct (-)
Part is placed on an open work order	WIP Acct (+)	Parts Inventory (-)
Work Order is Invoiced	Cost of Sale Acct (+)	WIP Acct (-)
AP Invoice Entry using PO Import	Accrued PO Acct (+)	Payables (-)

If an account in chart of accounts is set up with only a WIP Account (no Accrued PO Account) this is how you can expect your GL entries to hit the GL:

Process	Debit	Credit
Stock part is placed on open work order	WIP Account (+)	Parts Inventory (-)
Work Order is Invoiced	Cost of Sale Acct (+)	WIP Account (-)

If an account in Chart of Accounts is set up with only an Accrued PO Account (no WIP Account) this is how you can expect your GL entries to hit the GL:

Process	Debit	Credit
Part is placed on PO for stock	No GL entry is made	No GL entry is made
Part is received on PO	Parts Inventory (+)	Accrued PO Acct (-)
AP Invoice Entry using PO Import	Accrued PO Acct(+)	Payables (-)
Part is placed on open work order	No GL entry is made	No GL entry is made
Work order is invoiced	Cost of Sale Acct (+)	Parts Inventory (-)