Overview 

Cash Basis Accounting is used to post transactions to the General Ledger only when cash is received or paid out. Using this method, revenue is only recorded when a payment is received, and expenses are only recorded when making a payment. Therefore, posted (finalized) records will only create transactions that are recorded in the General Ledger when cash is received or paid out. This method is typically used by smaller businesses and/or businesses in the service industry.

Some of the benefits when using Cash Basis Accounting include the following:

• It is easy to keep close focus on cash in and out.
• If taxes are filed on a Cash Basis, it is very easy to turn information over to a tax accountant.

View the video below to learn more about Cash Basis Accounting.

Important: The ability to select Cash as the Accounting Method is only applicable when an AS Native Tax Method is selected in the Tax Settings field on the Ledger record.  

Important: When using the Orders & Inventory package to track inventory, the ability to use a Cash Ledger is currently not supported. 

Contents

• Migrate to Cash Basis Accounting
• Configure Settings for Cash Basis Accounting
  • Accounting Method
  • Default GL Accounts
  • Accrual and/or Cash field on the Journal Entry and Amortization Entry objects
• Large Data Volume when using Cash Basis Accounting
• Consolidation Ledgers with Cash Basis Accounting
• Create and Post Records with Cash Basis Accounting
  • Billings or Payables
  • Aging History Records with Cash Basis
  • Cash Receipts or Cash Disbursements - Posted
  • Cash Receipts or Cash Disbursements - Applied
  • Funding Credit Memo (on Cash Ledgers)
  • Post and Apply Order
• Financial Reports and Salesforce Reports

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Migrate to Cash Basis Accounting

You cannot change the Accounting Method to Cash on the Ledger. A new Ledger will need to be provisioned and then Cash can be selected as the Accounting Method on the new Ledger.

Best Practice: If you would like to start using the Cash Accounting Method, we recommend tracking your business on both Accrual and Cash Basis (Multi-book Accounting). To do this, select Accrual and Cash as the Accounting Method on the Ledger. This will allow you to get a true picture of your business performance while at the same time, keeping a close eye on money coming in and money going out. Selecting Accrual and Cash as the Accounting Method will require an additional Ledger. For more information, please send an email to licensing@accountingseed.com.

If you would like to switch from Accrual to Cash (with posted transactions), keep the following points in mind:

• If you currently have Accrual as the Accounting Method, and want to switch to Cash, the Accrual Ledger will be deactivated. However, the historical transactions on the inactivated Accrual Ledger will still be available to review and for reporting purposes.
  Important: Be aware that if you have outstanding Billings that include a PaymentSITE link (Sola) or Payment Link (Stripe), your existing Accrual Ledger should NOT be deactivated.
• You cannot switch from Accrual to Cash or from Cash to Accrual on the same Ledger.
• If you do NOT want to track on both Accrual and Cash (Multi-book Accounting), but Cash only (or vice versa), there is no cost for the additional Ledger. But, keep in mind that the existing/current Ledger will be deactivated.
• You will need to create opening balances on the Cash Ledger.
• If you unapply a Cash Receipt to a Billing or Cash Disbursement to a Payable, or unpost a source document prior to making the switch to a different Accounting Method, you will need to  manually adjust the opening balances that were previously entered.

Important: Before making the switch to Cash Basis, you should read through all of the information in this article. When you are ready to switch to Cash Basis, select Cash as the Accounting Method on the new Ledger record that will need to be created (when transactions have been posted against the existing Accrual Ledger). If you need assistance, refer to the Configure a Ledger article.

Configuration Settings for Cash Basis Accounting

Accounting Method

The Accounting Method drop-down list on the Ledger record provides the option to select from one of the following three methods:

• Accrual
• Cash
• Accrual and Cash (Multi-book Accounting)

The Accounting Method field will automatically be available on the Ledger page layout for new Accounting Seed customers. However, existing customers will need to add this field, which was included with our Spring ’24 Release. If you have not added the Accounting Method field to the Ledger object, use the information in the Add the Accounting Method field to the Ledger section of the Spring ’24 Configuration Changes article to add this field.  

Important: After adding this field, until you are actually ready to switch to Cash or Accrual and Cash (Multi-book Accounting) on the Transactional Ledger record, Accrual should initially be selected from the Accounting Method drop-down list. If you need assistance, use the Configure a Ledger article to update the Accounting Method field on the Ledger.

Default GL Account Settings

The Default GL Accounting Settings screen includes the Cash Basis Accounting section with the following two GL Account fields:

• Unapplied Revenue GL Account – Cash Receipts will initially post to this GL Account. Once applied to a Billing, this will be reversed and posted to the Revenue and Tax GL Account(s) on the Billing.
   
• Unapplied Expense GL Account – Cash Disbursements will initially post to this GL Account. Once applied to a Payable, this will be reversed and posted to the Expense GL Account(s) on the Payable.

Note: When using the ”out of the box” Unapplied Revenue GL Account, you may need to manually select the appropriate Sub Type 1 on this GL Account, and select Sub Type 2, if necessary.

If you need assistance with creating these GL Accounts, refer to the Create a New GL Account article. Once the GL Accounts have been created, use the information in the Default GL Accounting Settings article to select the GL Accounts in the Cash Basis Accounting section.

Accrual and/or Cash field on the Journal Entry and Amortization Entry objects

The Accrual and/or Cash field on the Journal Entry and Amortization Entry objects is only necessary if you select Accrual and Cash as the Accounting Method. Otherwise, if you select Cash as the Accounting Method, it will not be necessary to add this field to the objects.

Note: Once a Journal Entry and/or Amortization Entry has been posted, the Accrual and/or Cash field cannot be edited. An error message will display if you attempt to change this field after posting.

The selections in the Accrual and/or Cash drop-down list include the following:

• Accrual
• Cash
• Accrual and Cash (Multi-book Accounting)

This field will automatically be available for new Accounting Seed customers. Existing Accounting Seed customers will need to add it to the page layout on both objects. Use the steps below to add this field.

1. Click the Gear icon and select Setup.
2. Click Object Manager.
3. Enter Journal Entry in the Quick Find textbox. Then, select the Journal Entry object.
4. Click Page Layouts and select the Journal Entry Layout.
5. From Fields, drag and drop the Accrual and/or Cash field onto the page layout directly below the Type field.
6. Click Save.
7. Click Object Manager.
8. Enter Amortization Entry in the Quick Find textbox. Then, select the Amortization Entry object.
9. Click Page Layouts and select the Scheduled Revenue Layout.
10. From Fields, drag and drop the Accrual and/or Cash field onto the page layout directly below the Ledger field.
11. Click Save.

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Large Data Optimizer when using Cash Basis Accounting

If you have a high volume of transactions, our best practice recommendation is to enable the Large Data Optimizer (LDO) feature. LDO was included with the Spring ’24 release, and it provides the ability to post/unpost more lines on these source documents: Billings, Payables, and Journal Entries.

If you want to have the Large Data Optimizer (LDO) feature enabled, submit a case to our Customer Support team. Once the LDO feature has been enabled, when you post/unpost any of the above source documents from the detail page or the list view, the records will be posted/unposted asynchronously as a system background process.

Consolidation Ledgers with Cash Basis Accounting

You can create Consolidation Ledger Hierarchies for Accrual Ledgers and separate Ledger Hierarchies for Cash Ledgers. However, an Accrual Ledger cannot be consolidated with a Cash Ledger. If the parent on the Ledger Hierarchy is Accrual, then all of the children must be Accrual. And, if the parent on the Ledger Hierarchy is Cash, then all of the children must be Cash. For more information about the Ledger Hierarchy when using Consolidation Ledgers, refer to the Set up Consolidations article.

Best Practice: If you change the Accounting Method on a Consolidation Ledger, we recommend that you create a new Ledger Hierarchy. For more information, refer to the Set up Consolidations article.

Important: When you create a Ledger with the Type selected as Consolidations-Transactional, the Accounting Method must be either Accrual or Cash. It cannot be Accrual and Cash (Multi-book Accounting). An error message will display if you attempt to select Accrual and Cash on a Consolidations-Transactional Ledger or Consolidations-Budget Ledger. Additionally, the Accounting Method on the Eliminations Ledger must be the same as the Accounting Method on the related Consolidations-Transactional Ledger. 

Create and Post Records with Cash Basis Accounting

Billings or Payables

When the Accounting Method on the selected Ledger is Cash, Billings and Payables will be created on the Cash Ledger. However, when the records are posted, no transactions will be generated. The posting of a Billing or Payable on a Cash Ledger represents the finalization of that document.

The sample Billing below has been posted (finalized).

Note: Click here to view the above image in full screen. 

Since this is a Cash Ledger, no transactions were generated.

Note: Click here to view the above image in full screen. 

Note: As with Billings, no transactions will be generated when a Payable is posted (finalized).

Aging History Records with Cash Basis

Even though transactions will not be generated when Billings and Payables are created, the system will generate aging history records (AR Aging History and AP Aging History) from the Billings and Payables that were posted when an Accounting Period is closed. This provides the ability to track the money owed from customers and to vendors, as well as run the historical aging reports to view outstanding balances in each aging bucket.

Cash Receipt or Cash Disbursement - Posted

With Cash Basis Accounting, when cash comes in or goes out, it must be reflected on the Profit & Loss. When the Accounting Method on the Ledger is Cash, transactions will be generated for Cash Receipts and Cash Disbursements on the Cash Ledger after they have been posted.

The sample Cash Receipt below has been posted (finalized).

Note: Click here to view the above image in full screen. 

Notice that transactions were generated for this posted Cash Receipt. The credit transaction will go into the GL Account that was selected in the Unapplied Revenue GL Account field on the Default GL Account Settings screen.

Note: If a payment is made using a credit card, it will be treated as a cash payment as long as the GL Account has the Bank/Credit Card Account checkbox selected.

Note: Click here to view the above image in full screen. 

On posted Cash Disbursement, the debit transaction will go into the GL Account that was selected in the Unapplied Expense GL Account field on the Default GL Account Settings screen.

Note: Click here to view the above image in full screen. 

Cash Receipt or Cash Disbursement - Applied

When the Accounting Method on the Ledger is Cash, the BCR (Billing Cash Receipt) or the APD (Accounts Payable Disbursement) will be created on the Cash Ledger when the Cash Receipt is applied to the Billing, or the Cash Disbursement is applied to the Payable.

When generating transactions on the BCR or APD, the system will reverse the amount that was recorded in the Unapplied Revenue GL Account or Unapplied Expense GL Account, and it will look up the related Billing or Payable to determine how to record the actual Revenue or Expense amounts.

The sample BCR (Billing Cash Receipt) screen below shows the debit transaction (to reverse the previous credit transaction) to the Unapplied Revenue GL Account and the credit transactions based upon the related Billing Line(s) items.

Note: Click here to view the above image in full screen. 

The sample APD (Accounts Payable Disbursement) screen below show the debit transaction based upon the related Payable Line(s) items and the credit transaction (to reverse the previous debit transaction) to the Unapplied Expense GL Account.

Note: Click here to view the above image in full screen. 

Funding Credit Memo (on Cash Ledgers)

A negative Billing Cash Receipt (BCR) that is created as a part of the Issue a Refund on a Cash Receipt process will not create transactions for the BCR on a Cash Ledger because offsetting transactions will not be created on the related Funding Credit Memo. When a BCR is created as part of the Refund process, the Funding Credit Memo checkbox on the related Billing will automatically be selected. This will be a clear indication that the related BCR was created as part of the Refund process.

If you are an existing Cash Basis Accounting user, use the steps below to add the Funding Credit Memo checkbox onto the Billing object.

1. Display a Billing.
2. Click the Gear icon and select Edit Object.
3. Click Page Layouts and select the Billing layout.
4. Drag and drop the Funding Credit Memo field onto the page layout directly below the Ledger Amount.
5. Click Save.

Post and Apply Order (on Cash Ledgers)

Since each step in the process works off of what has already been recorded, it is important to record and apply in the order of the Accounting Period Date or the Applied Date (from the earliest date to the latest date). For example, you might have a partial paid Cash Receipt in the Accounting Period of 2024-01, a Credit Memo that was applied to it in 2024-02, and a final partial Cash Receipt in 2024-03.

Using the above example, you might determine that you need to reverse the initial partial Cash Receipt from 2024-01. Since the order to record and apply must be in the order of Accounting Period Date or the Applied Date, you would need to first, reverse the final partial Cash Receipt from 2024-03, and then reverse the Credit Memo that was applied in 2024-02, and after that reverse the partial paid Cash Receipt from 2024-01. Once the Cash Receipt in 2024-01 is reversed, you can go ahead and re-apply the Credit Memo in 2024-02 and the partial Cash Receipt in 2024-03, in that order.

When applying both a Credit Memo and a payment(s) in the same Accounting Period, the Credit Memo must be applied first.

Note: When you attempt to unapply records out of sequential order, an error message will display.

When you void a Cash Receipt on a Billing that a Cash Receipt has been applied to, the Void Date must be in an Accounting Period that is greater than or equal to the Accounting Period on the related Billing Cash Receipt (BCR) or the Billing Credit Memo (BCM).

For more information about partial payments, refer to the Cash Basis Processes article.

Best Practice: We recommend that the Billing Cash Receipts and the AP Disbursements source records be set to Auto-Post in the Post Settings screen.

Important: Billing Cash Receipt (BCR) and AP Disbursement (APD) transactions that are generated on a Cash Ledger are also associated with the Billing and Payable (or Billing Line and Payable Line, based upon the Posting Settings). These BCR and APD transactions will display on the Billing/Payable (or Billing Line/Payable Line) Transactions related list. However, these transactions will only be affected by the BCR/APD posting process. Therefore, if a Billing or Payable is unposted/reposted due to a change, the related BCR or APD record would need to be reposted in order to reflect the change on the Cash Ledger transactions.

Financial Reports and Salesforce Reports

Accounting Seed Financial Reports, as well as reports that are created using the Salesforce Report Builder can be selected by Ledger. Therefore, when running reports, you can simply select the Cash Ledger to view a Cash Basis report or the Accrual Ledger to view an Accrual Basis report.

Note: Click here to view the above image in full screen. 

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Spring '25 Release

Release Notes and Schedule

The Funding Credit Memo (on Cash Ledgers) was added with this release.