Accrual Accounting-who does this monthly?

[Miss_E]

Hello Everyone,

I could do with some opinions please.

The company I am employed with would like me to change our accounting method from cash accounting to accrual accounting.

I cant see any benefit to this because I track each contract & budget closely & the monthly management reports I produce / mainly budget reports shows them everything that they need to know.

They are concerned with what other businesses are doing & what financial reports external people would like to see ie if they wanted a bank loan or were to sell the business.

Accrual accounting is a lot of extra work because of the way our 7 contracts work.The Year End Accounts are done via the accountants on an accrual basis, all of our contracts tie in with our year end so there are not many adjustments.
Also I do prepayments / accruals relating to things in the overheads ie rent / insurance

In January For one contract we might receive £100k income, of that £15k is our management fee ie Profit & the £85k is going to be spent at some point in the year.
Then we might pay for £30k of expenses in Jan, but £20k could relate to different months ie we pay £5k for accommodation in Jan, but the training course is not until Feb.
Every single sales invoice, purchase invoice relates to different months!

Do any of you do Accrual Accounting?

Thanks in advance for your advise!

 

[Miss_E]

Thanks for the reply.
Our financial year end ties in with the end of season of all of our contacts. Then the next month a new budget starts.
When the accountants get the Sage back up, all I have to do is deffer income on ONE invoice. All of the expenses tie up with the year end date & end of budgets!

The question to my employers is do they want to see an accurate P&L each month, where is at the moment each month does not relate to the income & exps in that ONE month.
However the budget reports do show them everything that they need to know to track each contract.
We have no variable factors that will effect the profit, so if I did adjustments journals each month the profit on the P&L will be the same each month.
I have said to them that the most important factor in the monthly reports is that they have all the information that they need, in which they haven't argued that they dont they have just been advised from an outsider that we should be doing accrual accounting.

Larger companies seem to have a management accountant as well as data enter clerks, payroll staff etc. I run the entire finance operation for the company & I think I am going to have to free up my work load if they want me to change my accounting system that I have been doing for years.

I was hoping to hear from other bookkeepers that do the accrual accounting method. To see if there were other complicated business out there running several contracts where the accruals concept is not an easy task?!

 

[bookkeeping_monster]

Yes, I am also doing accrual basis accounting. I would like to mention that accrual basis reports are quite useful to the reader as that can help the reader understand the true cash position and money blocked in Working capital which is generally not completely reflected in a Cash basis report.

Accrual basis of accounting may not always lead to additional work, however yes, the entries may need to be closely monitored to ensure all accruals are accounted for.

I hope you would be using some accounting package to track your companies income and expenses?

Trust this helps.

 

[accounting nerd]

I am also doing the accrual basis of accounting under the US GAAP requirement. I agree, that in your situation it sounds like it will be more work to account for transactions on the accrual method. However, as you state, it is tough to get a loan or compare different sets of financial statements if they are not on the same basis of accounting.

 

[Miss_E]

Thank you to everyone who has shared their views!

After speaking it through with the Accountants they have agreed that I am doing everything correctly; which is good news to my ears!
They have said that our business model relates more closely to how a construction site works, where the expenses are identified to a specific contract.
The Profit & Loss report is produced at the end of the contract only.

We don’t produce a monthly P&L because we know that the profit is just the management fee.
Our budget / Contracts runs to the same year end as our financial year, so come year end the full sales income has been raised, & the full budget & expenses have been spent.
Project Job Costing method is being discussed.

Thanks.