Accounting Methods : Cash Basis,Accrual Basis,Combined Basis Accounting

Accounting Methods

When you set up Payables you choose a primary and an optional secondary accounting method in the Payables Options window. The accounting method you choose determines the distributions Payables creates when you post your transactions. For each accounting method, cash or accrual, you choose a set of books to which you will to post transactions. You cannot change your primary accounting method after you post your transactions. Set up Payables to create accounting entries in compliance with one of the following accounting methods:

• Cash Basis Accounting. You record only payments, and do not record liability information for invoices. The payment distributions typically debit your expense or asset account and credit your cash or cash clearing account. When you post payments, Payables may also create distributions for discount taken and foreign currency exchange gain or loss.

• Accrual Basis Accounting. You post accounting distributions for invoices and payments. The invoice distributions generally debit your expense account and credit your liability account. For prepayments, Payables creates distributions that debit your prepayment account and credit your liability account.

Payment distributions typically debit the liability account and credit the cash or cash clearing account. When you post payments, Payables may also create distributions for discount taken and foreign currency exchange gain or loss.

• Combined Basis Accounting. You maintain one set of books for cash accounting and one set of books for accrual accounting. You choose which will be your primary set of books and which will be your secondary set of books. Invoice distributions are recorded for your accrual set of books, and payment distributions are recorded in both your cash set of books and accrual set of books.

Combined basis accounting allows you to produce financial reports for either your cash or accrual set of books. For example, you may want to manage your company on an accrual basis, but require cash basis accounting information for certain regulatory reporting on a periodic basis.

See Also

Defining Your Chart of Accounts Budgetary Control In Payables
Automatic Offsets
Foreign Currency Transactions
Intercompany Accounting
Posting
Posting When You Use Accrual Basis Accounting
Posting When You Use Cash Basis Accounting
Setting Up Your Accounting Method
Oracle Cash Management User's Guide
Encumbrance with Combined Basis Accounting
Encumbrance with Cash Basis Accounting