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Linas Vepstas 1999-11-29 08:06:00 +00:00
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<!DOCTYPE html PUBLIC "-//IETF//DTD HTML 2.0//EN">
<html>
<body>
<h1>Accounts Payable &amp; Accounts Receivable</h1>
<head>
<title></title>
</head>
A/R and A/P are kind of deep,
<p>
<body>
<h1>Accounts Payable &amp; Accounts Receivable</h1>
A/R and A/P are kind of deep,
Anyways, let's consider A/R. We can't really relate to A/P
bcos we always pay *our* bills on time, don't we ? :-)
<p>
<p> Anyways, let's consider A/R. We can't really relate to A/P
because we always pay <em>our</em> bills on time, don't we ?
:-)</p>
So anyways, let's say we give our customers 30 days to pay.
<p>
<p> So anyways, let's say we give our customers 30 days to
pay.</p>
When we make a sale, the two accounts affected are Sales (an
income account) and A/R. A/R is an asset, but it's not liquid,
and it's not quite cash.
<p>
<p> When we make a sale, the two accounts affected are Sales
(an income account) and A/R. A/R is an asset, but it's not
liquid, and it's not quite cash.</p>
Then when they come by to pay their bill, dropping off a big bag
of twenty-dollar bills, we transfer the amount from A/R to Cash.
<p>
<p> Then when they come by to pay their bill, dropping off a
big bag of twenty-dollar bills, we transfer the amount from A/R
to Cash.</p>
The reason we do it in two steps is that we've decided to do
our accounting on an accrual basis and not on a cash basis,
bcos, well, most of our transactions are not cash, they're
obligations.
<p>
<p> The reason we do it in two steps is that we've decided to
do our accounting on an accrual basis and not on a cash basis,
bcos, well, most of our transactions are not cash, they're
obligations.</p>
We report sales in our sales figures as soon as we make them,
but if the auditor wants to know about whether we're gonna get
stuck with bad debts, we break down those A/R's by how old they
are: 0-30 says, 31-60 says, etc. At some point when a particular
debt is "written off", like when the cheesing bastards go bankrupt,
we dock both A/R and Sales, so we're going back and patching up
(or rather, "patching down") the Sales account to show that the
Sale was never made good.
<p>
<p> We report sales in our sales figures as soon as we make
them, but if the auditor wants to know about whether we're
gonna get stuck with bad debts, we break down those A/R's by
how old they are: 0-30 says, 31-60 says, etc. At some point
when a particular debt is "written off", like when the cheesing
bastards go bankrupt, we dock both A/R and Sales, so we're
going back and patching up (or rather, "patching down") the
Sales account to show that the Sale was never made good.</p>
We can use the same technique for things that we prepay. If
we have to plunk down six months' rent in advance, that is an
"accrued asset", and while it put a healthy dent in the Cash
account, it does show on the books as an asset. And if we've
been collecting payroll taxes from our employees and keeping
them in a special bank account, the money's not really ours,
so we have a growth in the Cash account on one side, and a
growth in an Accrued Liability, namely, Payroll Taxes Payable,
on the toher side. When we send the quarterly check to the
Feds so that they can make payroll too, our liability drops
and so does our Cash account.
<p>
</body>
<p> We can use the same technique for things that we prepay. If
we have to plunk down six months' rent in advance, that is an
"accrued asset", and while it put a healthy dent in the Cash
account, it does show on the books as an asset. And if we've
been collecting payroll taxes from our employees and keeping
them in a special bank account, the money's not really ours, so
we have a growth in the Cash account on one side, and a growth
in an Accrued Liability, namely, Payroll Taxes Payable, on the
toher side. When we send the quarterly check to the Feds so
that they can make payroll too, our liability drops and so does
our Cash account.</p>
</body>
</html>