Accrual Based Accounting

Modified on Wed, 18 Jan, 2023 at 10:09 AM

What is Accrual Based Accounting?  


Accrual accounting means 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.


To enable Accrual Based Accounting in Softbase Evolution


Navigate to 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.  

Other Setup: 


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



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 (-)

OR


              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 (-)

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