Cash Basis Method of Accounting: Overview of Technical Accounting

Cash Basis Method of Accounting: Overview of Technical Accounting

Cash Basis accounting registers were updated in 2025 to align with the American Institute of Certified Public Accountant’s (AICPA) “modified cash basis”, simply referred to as “cash basis” by the accounting profession. This method of accounting is recognized as an Other Comprehensive Basis of Accounting by the AICPA, and is not governed by the Financial Accounting Standards Board, SEC, or International Financial Reporting Standards (IFRS). It is a method that allows more simplistic accounting flow than in the accrual basis of accounting.

The below article focuses on how cash basis accounting impacts the general ledger in the CustomBooks™ software. For general information on Upgraded Cash Basis, please see this article.

Cash Basis General Ledger Impact in the Sales and Purchases Modules

When cash basis is enabled in a tenant, a separate set of records are kept for each transaction, which utilize the Upgraded Cash Basis mapping and framework. Maintaining records for both accrual and cash methods of accounting allows users to run either accrual basis or cash basis reports.

Below scenarios depict how cash basis accounting is used in the software. Account references are of the account selection in Accounting Settings.

Purchases transaction flow:

Cash without Inventory: Cost of Goods Sold increases through Vendor Prepayments and Bill Payments, and decreases with Vendor Refund Receipts. Inventory is not used and Accounts Payable is not accrued for.

Cash with Inventory: Inventory increases through Item Receipts (or Bills, if Item Receipts are not used), and decreases with Vendor Credit Memos and Vendor Refund Receipts. Inventory Received Not Yet Paid is increased through Item Receipts, and decreased with Prepayments, Vendor Credits, and Bill Payments if Item Receipts are not used. Accounts Payable is not accrued for.

Sales transaction flow:

Cash without Inventory: Sales and Sales Tax Payable increase with Prepayments, Cash Sales, and Cash Receipts. Sales Return & Refunds increases with Customer Refund Payments. Neither Cost of Goods Sold, Inventory, nor Accounts Receivable are used.

Cash with Inventory: Sales and Sales Tax Payable increase with Prepayments, Cash Sales, and Cash Receipts. Sales Return & Refunds increases with Customer Refund Payments. Inventory decreases with Shipments or Sales Invoices and increases with Customer Returns and Refunds. Cost of Goods Sold is similarly recorded. Inventory Shipped Not Yet Invoiced is increased with Shipments and decreased with Sales Invoices. Accounts Receivable is not accrued for.

Comparison of Accrual, Cash without Inventory, Cash with Inventory, and Cash (previous version)*

*Cash (previous version) is only applicable for CustomBooks™ accounts created prior to mid-2025 or for conversions.


Cash Basis General Ledger Impact in Payments, Deposits, and Journal Entries

Deposits and Payments: The document will post records to the cash basis ledgers based on the mapping tool. This use is also applicable for the Expenses tab of Bills. For instance, if a Payment document is used to record a purchase of Office Supplies (asset), and the mapping tool had mapped Office Supplies to a Supplies Expense account, then the payment will post the Office Supplies asset account in the accrual ledger and Supplies Expense account in the cash register.

If the mapping is not applicable for the specific transaction, a journal entry should be used to adjust the cash basis ledger to the correct account. 

Journal entries: a checkbox selector indicates whether the journal entry is posted to either the cash or accrual ledgers, or to both ledgers.

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