Out of the box, Microsoft Dynamics GP supports accrual basis accounting. Luckily, this is the generally accepted method for accounting and paying taxes for most organizations in the US. However, many companies would also like to see their accounting reported in cash basis. Cash Basis Reporting can fill the need within Microsoft Dynamics GP. It uses standard reporting tools within Microsoft Dynamics GP and allows users to prepare cash-basis and accrual-basis financial reports simultaneously.
Accrual basis versus cash basis accounting is really a matter of timing. Accrual basis allows companies to accrue expenses when they are earned and claim deductions when expenses are incurred. For example, you run a bicycle shop. You order bicycles on May 1st, but you don’t actually get the bikes and invoice until June 1. Accrual basis would show the expense on May 1st. Similarly under accrual basis, if you were to perform work on a bicycle on May 1st but you don’t get paid for the service until May 15th, you would go ahead and accrue the income on May 1st.
Under cash basis, the opposite is true. Expenses are accounted for on the day they are paid – and income is counted on the day it is received, regardless of when it was incurred or earned. (Similar to the way most individuals manage their personal finances.)
So, why, if most companies use accrual basis for accounting and paying taxes, would a company want to see cash basis reporting? The number one reason is a gap between what management expects to see and what accrual reporting shows. Many managers aren’t concerned with depreciation or don’t care that you prepaid your insurance in January for the year and are accruing each month. They wants to know why in the world your cash balance didn’t grow by the amount of income for the month. That’s the gap that cash basis bridges.
The Cash Basis Reporting add-on for Microsoft Dynamics GP is available from AIM Technologies. Download a free trial at http://www.aim-technologies.com/enhancements.html.
By AIM Technologies, Louisiana Gold Microsoft Dynamics GP Partner
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