[Accounting] Go live on the fiscal year using the cash basis method.

Accounting Quickstart SF-Experts

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Pei Hua Tsai (pht)

Purpose/ prerequisites

1. The purpose of this document is to guide cash basic users who plan to transition to live operations in the upcoming fiscal year.

2. It is important to note that we will continue to implement the Accrual basis method, which ensures accurate representation of the Profit and Loss statement by incorporating the receivable or payable amounts from the previous year.

3. The following example is based on the United States localization in version 17 and serves as a reference for illustrating the concepts discussed. But the process works for most of the versions.

Pei Hua Tsai (pht)

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Conclusion:

1. Modify the initial balance by excluding the relevant amounts from AR, AP, and Equity.

2. Incorporate the outstanding invoices by utilizing the product sales (income) account, allowing Odoo to display this amount in the unallocated earnings of the previous year in the equity section. This is the reason for eliminating the relevant amount in step 1 from the equity amount.

3. Import the outstanding bills by using the expense account. This enables Odoo to reflect this amount in the unallocated earnings of the previous year in the equity section.

4. Comparison between cash basis and accrual basis.
On a cash basis, open invoices and bills are recorded under income and expense accounts.
On an accrual basis utilizes AR clearing and AP clearing accounts.

Video: https://drive.google.com/file/d/1W_2_Atknmg6V6Ns2uA3RmYYiWRKemMc

Workflow:

1. Assume the fiscal year is January 1st. The initial trial balance is as follow:

	Balance	Debit	Credit
Inventory	1000	1000
AR (Account receivable)	8000	8000
Bank	3000	3000
Total asset	12000
AP (Account payable)	2000		2000
Net income	6000		6000
Capital	4000		4000
Total liability + equity	12000

2. The resolution to implement the cash basis is to eliminate the $8000 debit from accounts receivable (AR) and deduct a total of $8000 from equity. However, considering the initial balance, we will deduct $6000 from net income and $2000 from the capital. The outcome is as follows:

	Balance	Debit	Credit
Inventory	1000	1000
AR (Account receivable)
Bank	3000	3000
Total asset	4000
AP (Account payable)	2000		2000
Net income
Capital	2000		2000
Total liability + equity	4000

3. After addressing the outstanding receivables, it is necessary to eliminate the $2000 credit from the accounts payable. In turn, we should record a $2000 credit in the capital. Consequently, the capital will reflect a total credit of $4000. The outcome is presented below.

	Balance	Debit	Credit
Inventory	1000	1000
AR (Account receivable)
Bank	3000	3000
Total asset	4000
AP (Account payable)
Net income
Capital	4000		4000
Total liability + equity	4000

4. The outstanding invoices will directly utilize the AR and Income account, which will be reflected in the equity section of Odoo. This is because of the connection between the P&L and Balance sheet in Odoo. The net income from the P&L will automatically be reflected in the equity section of the balance sheet using the 99999 undistributed profits/losses account. Let's assume that there are three outstanding invoices totaling $8000.

Date	Customer A	Debit	Credit
11/2/2023	AR	2000
	Product sales (income)		2000
Date	Customer B	Debit	Credit
12/5/2023	AR	1000
	Product sales (income)		1000
Date	Customer C	Debit	Credit
12/7/2023	AR	5000
	Product sales (income)		5000

5. Open bill as follows:

Date	Vendor A	Debit	Credit
12/20/2023	AP		2000
	Expense	2000

6. After all the steps, the open balance on 1/1/2024 will result to step1.

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