For income taxes, there are two ways to do the math: cash or accrual. Goldenseal accounting software includes both.
Cash accounting is based on when money changes hands. It’s all about bank transactions. Expenses come from payments by check, credit card or cash. Income comes from deposits received for sales, project work or rentals. It’s simple, so most people do taxes that way.
Accrual accounting happens when you earn money, or someone earns money from you. Expenses come from equipment and labor hours, material purchases, subcontractor and other costs. Income from sales happens when you sell the item, even if you are paid later. Rental income accrues when rent is due. Project income is complicated. You need to calculate or guess at the value of work completed at any given time.
Job costing is an accrual variant that is useful for construction accounting. It takes accrued expenses for each project, and matches them up with the original estimate. If you do it right, job costing will calculate that value of work completed, and let you know whether the project is over or under budget.
This all leads up to a tech problem we had recently. A user followed the instructions for pre-paid deposits on time & materials work. Some reports gave bad numbers. We suggested various workarounds. Most made it worse, or broke something else.
I think the root of the problem was because Project accounts are designed for accrual, not cash accounting. Paying to them on account is a cash thing that comes from the wrong side of the fence. Our final suggestion was to make down payments to the Customer account instead. They are better at dealing with cash. The down payment will show up in the Billing Statement, which is already designed to resolve everything.
Our staff needs to chew on this problem for a bit. Maybe we should add specific code to handle down payments for T&M work. Maybe it’s better to keep projects completely separated from cash income. Right now, you can receive money on account from a project, but that may be a mistake.
Goldenseal’s philosopy is to enter normal business transactions, then get financial reports from that data. That won’t change in our new accounting software. Usually it works out OK. Sometimes there are IEDs.
Dennis Kolva
Programming Director
TurtleSoft.com
