View Full Version : Startup A/R receipts to show margins on a Cash basis

Lewis Polk
08-11-2001, 09:15 AM
I have entered my startup balances from another system, but on a cash basis, receipts are used to show income. However, a good part of the receipt is cost of goods, so how do we show the profits for the first month accurately when the funds are received?

08-11-2001, 11:27 PM
If you were operating a full cash system, then the sale only takes place when the money is received. This means that your inventory would still have the goods in them until the cash is actually received.

To account for the cost of sales you can pass a journal entry crediting the relevant inventory account and debiting Cost of Sales with the cost price of the goods sold.

Thus your receipts will be accurately reflected and so will the months profits. You cannot subtract the COS from the value of the receipt, as this would result in a difference in the funds you receive and what you record in the "books"

It is not advisable though to function on a receipt basis. Hope this helps.