Accounting is the recording of financial transactions (expenses and revenues) that relate to your business activities.
In accounting, the two most common forms of recording financial transactions are using cash basis (method) accounting or accrual basis (method) accounting. The difference between the two approaches lies in the timing.
Transactions are recorded as soon as they occur and may or may not be when money changes hands. This method conforms with GAAP.
Shows you how much money you earned and spent in a given time period and can indicate business cycles
Requires more intensive bookkeeping
Transactions are only recorded when money changes hands. Many small business owners choose the cash method of accounting.
Simplified bookkeeping and gives a clear view of your cash flow
Can give an inaccurate financial picture without taking into consideration all revenue earned and expenses incurred
Example of Difference
A customer purchases an item from your pro shop and puts that amount on their Family account to be paid at a later date:
- Accrual Basis - the revenue from the sale of the item is recorded immediately
- Cash Basis - the revenue is not recorded until the payment has been received on the Family account
Jackrabbit uses cash basis for the purpose of reporting (recognizing) revenue, while still allowing you to track your Accounts Receivable...it is the best of both worlds!
Fees such as tuition fees, registration fees, etc. are posted to your family's accounts, but are not reported as revenue in Jackrabbit until those amounts are paid. A family's account balance will increase as fees are posted (debit transactions) and will decrease as payments (credit transactions) are received. You are able to report on all of your family balances, providing you with a detailed listing of Accounts Receivable (accountants often refer to this as an Accounts Receivable ledger).
Jackrabbit does not track expenses; this must be done in your accounting software.