Overview:
In Appliance.io, we support both accrual and cash basis accounting methods. This article explains how each method is handled in the platform, focusing on revenue recognition for product deliveries and performed services, while also considering how internal credit lines, refundable deposits, and Accounts Receivable (AR) are tracked. Understanding these differences is crucial for managing your appliance business's financials accurately.
Additionally, Appliance.io provides an easy toggle in relevant reports to switch between Delivered Sales (Accrual) and Written Sales (Cash) views, allowing you to see your financial data from both perspectives.
Accrual Basis Accounting:
Accrual accounting records revenue when the product is delivered or the service is performed, regardless of when cash is exchanged. In Appliance.io, deferred revenue refers to any portion of an order (product or service) that has not yet been delivered, regardless of whether payment has been made. If the customer uses an internal credit line, revenue is recognized once the product is delivered, and any unpaid balance is tracked as Accounts Receivable (AR) until the credit line is repaid.
Refundable Deposits in Accrual Accounting:
In accrual accounting, revenue is recognized when the product is delivered, regardless of whether a refundable deposit has been made or not. Refundable deposits are tracked as liabilities until they are used to pay for the order, but the timing of delivery is what dictates revenue recognition.
Key Concepts:
Revenue Recognition:
Revenue is recognized when the appliance is delivered or the installation/service is completed, regardless of whether payment has been received.Deferred Revenue:
Deferred revenue represents any undelivered product or unperformed service. If the customer uses an internal credit line, revenue is recognized once the product is delivered, and the unpaid amount is tracked as Accounts Receivable (AR).Refundable Deposits:
Refundable deposits applied to quotes remain a liability until they are applied to the final balance on the order. However, in accrual accounting, revenue is recognized upon delivery, even if the payment has not yet been completed or a deposit has been made.
Cash Basis Accounting:
Cash basis accounting records revenue when cash is received, regardless of whether the appliance has been delivered or the service has been performed. This method is simpler but can sometimes offer a less complete picture of your financial position since it doesn’t account for undelivered goods or unperformed services.
Refundable Deposits in Cash Accounting:
In cash basis accounting, revenue is only recognized when the payment is received. Therefore, refundable deposits are tracked as liabilities until they are applied to the balance and the quote becomes an order. Once the quote becomes an order and the refundable deposit is applied, it is counted as revenue.
Key Concepts:
Revenue Recognition:
Revenue is recognized when payment is received, even if the appliance has not been delivered or the service has not been performed yet.No Deferred Revenue:
Since revenue is recognized when payment is received, there is no deferred revenue on the balance sheet in cash basis accounting.Refundable Deposits:
Refundable deposits are tracked as liabilities until they are applied to the final balance when the quote converts into an order. At this point, the deposit is recognized as revenue.
Toggle Switch for Delivered vs. Written Sales:
In Appliance.io, all relevant sales-related reports include a toggle switch that allows you to easily switch between Delivered Sales (Accrual) and Written Sales (Cash). This feature helps you view your financial data from both perspectives—whether you’re following an accrual-based approach (based on delivery and service completion) or a cash-based approach (based on payments received).
Key Differences at a Glance:
Concept | Accrual Basis | Cash Basis |
Revenue Recognition | When product is delivered or service is performed | When cash is received |
Deferred Revenue | Recorded as undelivered goods or services | No deferred revenue, recognized immediately |
Accounts Receivable (AR) | Unpaid amounts tracked until payment received | Not applicable under cash basis |
Refundable Deposits | Tracked as liabilities but revenue is recognized upon delivery | Counted as revenue once applied to an order |
Income Statement | Revenue based on delivery and service completion | Revenue based on cash receipts |
Balance Sheet | Deferred revenue until delivery or service completion | No deferred revenue |
Conclusion:
Understanding both accrual and cash basis accounting is crucial for maintaining accurate financial records. With Appliance.io, you can seamlessly toggle between these methods, giving you full control over how you view and analyze your revenue—whether it’s based on when appliances are delivered and services are performed, or when cash is received.
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