Which Accounting Basis Should I Use?
Background:
As a business owner, you will need to determine which accounting basis you’ll use to record your accounting transactions in Patriot Software: Cash Basis, Modified Cash Basis, or Accrual Basis. By default, all accounting customers are set to a modified cash basis. You can change this later if needed by going to Settings > General Setup > Transaction Settings.
Here is an explanation of each of the accounting methods you can choose:
- Cash Basis is the simplest method, and will meet the needs of most small businesses with no inventory, fixed assets, or loans. You will use a limited number of accounts, record your income when you receive it, and record expenses when you pay them. Note: If you also have Patriot Payroll Software, you can only choose cash basis if you are a full-service payroll customer with no deductions or contributions. Otherwise, you will need to choose “Modified Cash Basis” in order to have a liability account to record payroll entries.
- Modified Cash Basis records income and expenses the same way as cash basis, but you can also track more accounts such as fixed assets or loans.
- Accrual Basis is more complex, using more account categories. You will record your income when you send invoices and money is owed to you, and record expenses at the time you are billed. You may change your accounting basis later as your business needs change.
For a detailed explanation of the different types of accounts, see our blog article about cash-basis vs. accrual-basis accounting.
To change your accounting basis later
- Settings > General Setup > Transaction Settings
- Select the Accounting Basis
- Click Save
Patriot’s patented Dual-Ledger Accounting
On many reports, you will be able to see different accounting methods than the default method you set. For instance, if you want to be able to view your general ledger in one accounting method while your accountant views it in another. Patriot has a unique patented Dual-Ledger Accounting feature that allows customers to switch back and forth between your accounting basis view. Patriot’s Dual-Ledger Accounting tracks accounting transactions in cash, modified cash, and accrual basis simultaneously–no conversions necessary. And we will save which accounting basis
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