There are two basic methods of accounting:
Cash accounting is based on when cash is received and disbursed. Income is recorded when payment is received from the client, and expenses are recorded when vendor bills are paid or when a check is issued. When using cash accounting, the general ledger will contain neither an accounts receivable nor an accounts payable account.
Accrual accounting records income when it is earned, and expenses when they are incurred. Therefore, accounts receivable and accounts payable accounts must be used to accurately keep track of income and expenses.
In Centerbase, income will be recorded either when a pre-bill is generated or when a bill is posted. The distinction is made by adjusting the System Settings for billing. Expenses will be recorded when a vendor bill is entered.
Centerbase uses a double-entry bookkeeping system. So, when a pre-bill is generated or a bill is posted, income is recorded as follows:
When payment for a client bill has been received:
When a vendor bill is created, the expense is recorded as follows:
When a vendor bill is paid:
Accrual Accounting Settings
In order to use Accrual Accounting, several System Settings will need to be updated.
You can now choose between cash and accrual accounting methods:
Default accrual accounts will also need to be established:
The Discount Account (for client bill discounts) and Credit Account (for client bill credits) should both be set up as contra-income accounts. These system default accounts can be overridden at the matter level, if necessary.
The Vendor Credit Account should be the asset account your firm uses to enter client expenses which will be added as expense entries on a client's matter.
Accrual Accounting Reports
When the Accrual Accounting Method is chosen in Systems Settings, the following accounting reports can switch between Cash and Accrual temporarily:
- Balance Sheet
- Profit & Loss Statement
- General Ledger
- Trial Balance reports