

Accounting for Startups - quan
http://blog.asmartbear.com/cash-or-accrual-basis-accounting.html

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buro9
Crikey, they make that all sound way more complex than it is.

I started a company very recently (my first), and after doing a little
research I opened an account with Xero.

<http://www.xero.com/>

I'm in the UK and Xero works perfectly for me and makes everything really
manageable. Reconciliation of bank accounts is built in (can even autosync
with HSBC), reporting is built in, invoicing and payments received it built-
in, everything including asset depreciation.

Yet it's:

* Web-based

* Has accountancy firms behind it (makes audits very easy)

* Very simple to use with great support and help (stuff like this article's content was a no-brainer)

* Shareable... give your chartered accountant access!

I have no connection with Xero at all, but since they've made pleasurable one
of the aspects of starting a business that I feared I would and am heartily
recommending them to UK startups (I don't know if they're set up for US, do
your own homework).

~~~
markkoberlein
Accounting is one of those things that I drag my feet to learn and practice
(along with taxes) when I would rather be coding.

Xero is the best app that I've found for keeping the day to day record keeping
simple but you still need an accountant to have as a resource to ask questions
and to check the books, especially around tax time.

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gte910h
I've made the mistake of accrual accounting when not needed before. The
current company I own for does cash based accounting, and wow, what a
difference.

Accrual is easily 5 times the work for many types of businesses than cash is.
You have to touch the books twice for _Everything_. Things you'd only do as an
afterthought in cash you have to make into a careful ordeal.

To quote one accountant: Until you can afford a full-time bookkeeper, why are
you thinking about doing accrual? (at 5 million revenue you have to swap to
accrual or $1 million revenue and hold actual goods in inventory).

If you're worried about your ability to do projections, I'm honestly going to
say that cash basis is much closer to your actual resources on hand than
accrual.

~~~
run4yourlives
Accrual methods make sense when you don't have a physical product and invoice
at regular intervals, especially if you have any type of retroactive invoicing
and/or charge any type of interest or are remitting to a third party.

Cash methods would be nightmarish in this circumstance.

~~~
gte910h
This pretty much exactly describes a huge portion of the business we do. I've
found cash basis very very nice in comparison to accrual for this exact use
case. (And was what was recommended by an accountant in particular).

Does your accounting software make it unable to track invoices if you're not
doing accrual or something? Mine does invoicing, AR, and other accounts just
fine.

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edw519
_If you get a huge purchase order from a new customer, that would show as
income_

This is NOT true.

A purchase order is a promise to buy, nothing else. It does not become income
under _any_ accounting method until you actually invoice that customer. That
normally occurs when you actually deliver products or services to them.

Once you invoice that customer, it is considered income using the accrual
method _whether or not your customer pays their bill_. It only becomes income
using the cash method when they actually do pay the bill. I imagine that's the
distinction OP was trying to point out.

Moral of the story: for accounting advice, seek an accountant, not a blog
entry posted on hn.

~~~
smartbear
Technically true, but the reaction to a purchase order is typically to issue
an invoice.

In any case, the argument is still true -- you invoice on a certain day, but
payment can happy any time. So just replace "PO" with "invoice" and it's still
correct.

~~~
edw519
_...the reaction to a purchase order is typically to issue an invoice..._

This is also not true, at least not anywhere I've ever been.

The typical reaction to a purchase order is to fulfill it, then invoice it.
This is an absolutely critical distinction. Until an actual accounting
transaction occurs, your books are not affected under any accrual method. A PO
is _not_ an accounting transaction.

 _So just replace "PO" with "invoice" and it's still correct._

No, replace "PO" with "invoice" and it _becomes_ correct.

You obviously have something important to offer and your your advice is well
intentioned. But your lack of precision on this accounting matter (just like a
technical or legal matter) can cause more confusion than help. Or worse.

I really didn't mean to nitpick, but nitpicking was warranted at such a
glaring error in terms. Lots of people here don't understand such matters and
people like you and me should just leave this kind of advice to the
appropriate experts.

~~~
smartbear
Fair enough! You're certainly right about the facts and that being precise on
these things is vital. Thanks!

