Accounting for Inventory

[Davc]

Getting rid of A\R and A\P is not correct.

Example Yr 1 sales 500, cash received 400, ending A\R 100.

Zero A\R and sales are now 400. Fine.

But

Yr 2 sales 1000, cash received 800, ending A\R 300

Zero A\R and sales are now 700. 100 less than they should be on a cash basis. The correct adjustment is to decrease sales buy the increase in the A\R. 1000-200=800!

Conversely a decrease in A\R will increase cash sales.

The same principle applies to A\P.

[Brad Imsdahl]

Sorry, I was thinking of how to convert cash bookkeeping to Accrual. You record everything when cash is paid or cash is received. Then at the end of year, you add AR to sales and AP to expenses. Now your books are accrual. On the first day of the next year, you reverse AR and AP and go back to recording everything under the cash method.