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