Profit &Loss a/c (cash basis)

[cjd]

When I generate the Profit & Loss a/c on a cash basis, the Income is about 7.5% greater than the actual amount of checks received from clients and deposited to the bank. Is there an explanation for this difference?

Thank you so much for any advice you are able to give me.

[Dena Stern]

When I generate the Profit & Loss a/c on a cash basis, the Income is about 7.5% greater than the actual amount of checks received from clients and deposited to the bank. Is there an explanation for this difference?

Answer: In generating, the Profit & Loss Statements there are two methods of Accounting used in Business. One is Cash Basis Accounting and the other one is Accrual Method of Accounting. In Cash Basis of Accounting, the basis of recording is to record all the cash received by the company irrespective whether the transaction is earned or not on that particular period. Some of the business today follow the Accrual method because this method shows the proper matching of Revenue and Expenses. In this method you are going to record only the cash when this is already earned whether receive or not.

In your case your Profit & Loss using the cash basis method is overstated compare it to the actual amount of checks received from the clients and deposited to the bank. The following reason:
1.) You have recorded an income under the accrual method in which no collection yet received from the customer or clients.
2.) Deposit in Transit in which you already have a check collections from the customer but not yet presented to the Bank for deposit or encashment.

I hope this answer will help you to understand the reason of difference you are trying to solved.

Thanks,
Jong

[cjd]

I agree with the reasons you have given, but I have not done any of the entries under (1) and (2). This is what puzzles me.

[cojhl2]

In your case your Profit & Loss using the cash basis method is overstated compare it to the actual amount of checks received from the clients and deposited to the bank. The following reason:
1.) You have recorded an income under the accrual method in which no collection yet received from the customer or clients.
2.) Deposit in Transit in which you already have a check collections from the customer but not yet presented to the Bank for deposit or encashment.

Thanks,
Jong

Jong there is more explanation needed I think. First: Recording transactions insn't done under cash or accrual accounting, that is a reporting parameter, and second: where the transaction is staged at the bank should have no affect on my books.

Sorry to hijack this thread but I need the answer to the original question also.

[cjd]

Correction to my reply

Jong you are right. I had written off some invoices to Bad Debts, which created an Income.
Thank you for enlightening me.

[cojhl2]

OK, now I understand also!!

Thank you

[Dena Stern]

Correction to my reply

Jong you are right. I had written off some invoices to Bad Debts, which created an Income.
Thank you for enlightening me.


Hello,

Thanks for the comment.... Any query related in making entrees you can post it so I can explain it to you very well.


Jong