Patent Application
20060106687
Accounting is the system to track and review the financial performance of a business or entity. Double entry accounting provides that every entry into the accounting system requires two entries in different accounts that offset each other, thereby keeping the books in balance. One basis for accounting is a cash basis and a second basis is an accrual basis. Using a cash basis, finds are recognized when the funds are actually received and expenses are recognized when payments are actually made. Using an accrual basis, finds are recognized once an item or service is sold, creating a receivable that will be received in the future and expenses are recognized when they are incurred, creating a payable that will be paid at a point in the future. Modern tax code allows certain businesses to use cash basis accounting and other businesses to use accrual based accounting. The use of either accrual or cash basis accounting can have desirable or undesirable tax consequences as the reportable income can change depending on the basis selected. In addition, certain creditors may desire to see financial statements using cash basis accounting and other creditors may desire to see financial performance using accrual based accounting. However, accurately switching the basis of accounting and determining the effects of switching the basis of accounting for a given company has been a challenging task, but a task that has a potential payoff in lower reportable income and lower taxes to be paid.
A method of automatically converting from accrual based accounting to cash basis accounting using a computer is disclosed. The method may include reviewing an entry in a general ledger, determining whether an entry in the general ledger is for a transaction between general ledger accounts that are treated differently in accrual based accounting and cash based accounting, for an entry determined to be between general ledger accounts that are treated differently in accrual based accounting and cash based accounting, calculating a modifying entry to convert the entry from accrual basis accounting to cash basis accounting, applying the calculated modification entry to the entry, and creating a modified balance sheet and modified income statement based on the modified entry.
Additionally, the method may include creating a table of the entries that were modified. The method may also include placing in a phantom income account payments from customers that have not yet been applied to an invoice such that the payments are included in the modified balance sheet and modified income statement, placing in a phantom expense account payments to vendors that have not yet been applied to a bill such that the expenses are included in the modified balance sheet and modified income statement, displaying in the sales tax payable account the opening balance, sales tax paid on paid or partially paid invoices and payments to tax vendors so long as the amounts had at least one posting to a cash or bank account, allowing a user to select, using a drop down selection box, to view financial statements as one of cash basis statements and accrual basis statements, allowing a user to select, using a drop down selection box, to view financial statements as one of cash basis statements and accrual basis statements and allowing the user to switch between the cash basis statements and the accrual basis statements, allowing a user to create a statement that highlights the differences between cash basis accounting and accrual based accounting for a particular entity, and allowing a user to view financial statements as one of cash basis statements and accrual basis statements and allowing the user to switch between the cash basis statements and the accrual basis statements by storing the calculated changes in a temporary location without modifying the underlying entries.
Also disclosed is a memory having a computer program stored therein, said computer program being capable of being used in connection with a computing apparatus where the memory may have a memory portion physically configured in accordance with computer program instructions that would cause the computing apparatus to review postings in a general ledger, determining whether the entry in the general ledge is for a transaction between general ledger accounts that are treated differently in accrual based accounting and cash basis accounting, for entries determined to be between general ledger accounts that are treated differently in accrual based accounting and cash basis accounting, determining a modifying entry to the entry to convert the entry from accrual basis accounting to cash basis accounting, modifying the amount of the entries based on the determined modified entry and create a modified balance sheet and modified income statement based on the reversed payable and accrual entries. The modifying entry may be based on the percentage of a payment that has been received or based on the percentage of a payment that has been made.
The computer program instructions may also cause the computing apparatus to create a table of the entries that were modified, place in a phantom income account payments from customers that have not yet been applied to an invoice such that the payments are included in the modified balance sheet and modified income statement, place in a phantom expense account payments to vendors that have not yet been applied to a bill such that the expenses are included in the modified balance sheet and modified income statement, display in the sales tax payable account the opening balance, sales tax paid on paid or partially paid invoices and payments to tax vendors so long as the amounts had at least one posting to a cash or bank account, to allow a user to select, using a drop down selection box, to view financial statements as one of cash basis statements and accrual basis statements, allow a user to select, using a drop down selection box, to view financial statements as one of cash basis statements and accrual basis statements and allowing the user to switch between the cash basis statements and the accrual basis statements, allow a user to create a statement that highlights the differences between cash basis accounting and accrual based accounting for a particular entity, and allow a user to view financial statements as one of cash basis statements and accrual basis statements and allowing the user to switch between the cash basis statements and the accrual basis statements by storing the calculated changes in a temporary location without modifying the underlying entries.
Additionally disclosed is a computing apparatus, that may include a display unit that is capable of generating video images, an input device, a processing apparatus operatively coupled to said display unit and said input device, said processing apparatus may include a processor and a memory operatively coupled to said processor, a network interface connected to a network and to the processing apparatus. The processing apparatus may be programmed to review postings in a general ledger, determining whether the entry in the general ledge is for a transaction between general ledger accounts that are treated differently in accrual based accounting and cash basis accounting, for entries determined to be between general ledger accounts that are treated differently in accrual based accounting and cash basis accounting, determining a modifying entry to the entry to convert the entry from accrual basis accounting to cash basis accounting, modifying the amount of the entries based on the determined modified entry and create a modified balance sheet and modified income statement based on the reversed payable and accrual entries. The modifying entry may be based on the percentage of a payment that has been received or based on the percentage of a payment that has been made.
The processing apparatus may also be programmed to creating a table of the entries that were modified, place in a phantom income account payments from customers that have not yet been applied to an invoice such that the payments are included in the modified balance sheet and modified income statement, place in a phantom expense account payments to vendors that have not yet been applied to a bill such that the expenses are included in the modified balance sheet and modified income statement, display in the sales tax payable account the opening balance, sales tax paid on paid or partially paid invoices and payments to tax vendors so long as the amounts had at least one posting to a cash or bank account, allow a user to select, using a drop down selection box, to view financial statements as one of cash basis statements and accrual basis statements, allow a user to select, using a drop down selection box, to view financial statements as one of cash basis statements and accrual basis statements and allowing the user to switch between the cash basis statements and the accrual basis statements, allow a user to create a statement that highlights the differences between cash basis accounting and accrual based accounting for a particular entity and view financial statements as one of cash basis statements and accrual basis statements and allowing the user to switch between the cash basis statements and the accrual basis statements by storing the calculated changes in a temporary location without modifying the underlying entries.
a and 4b are illustration of a general ledger in accordance with the claims;
Although the following text sets forth a detailed description of numerous different embodiments, it should be understood that the legal scope of the description is defined by the words of the claims set forth at the end of this patent. The detailed description is to be construed as exemplary only and does not describe every possible embodiment since describing every possible embodiment would be impractical, if not impossible. Numerous alternative embodiments could be implemented, using either current technology or technology developed after the filing date of this patent, which would still fall within the scope of the claims defining the invention.
It should also be understood that, unless a term is expressly defined in this patent using the sentence “As used herein, the term ‘______’ is hereby defined to mean . . . ” or a similar sentence, there is no intent to limit the meaning of that term, either expressly or by implication, beyond its plain or ordinary meaning, and such term should not be interpreted to be limited in scope based on any statement made in any section of this patent (other than the language of the claims). To the extent that any term recited in the claims at the end of this patent is referred to in this patent in a manner consistent with a single meaning, that is done for sake of clarity only so as to not confuse the reader, and it is not intended that such claim term by limited, by implication or otherwise, to that single meaning. Finally, unless a claim element is defined by reciting the word “means” and a function without the recital of any structure, it is not intended that the scope of any claim element be interpreted based on the application of 35 U.S.C. § 112, sixth paragraph.
The claimed methods, programmed memory and apparatus are operational with numerous other general purpose or special purpose computing system environments or configurations. Examples of well known computing systems, environments, and/or configurations that may be suitable for use with the invention include, but are not limited to, personal computers, server computers, hand-held or laptop devices, multiprocessor systems, microprocessor-based systems, set top boxes, programmable consumer electronics, network PCs, minicomputers, mainframe computers, distributed computing environments that include any of the above systems or devices, and the like.
The claimed methods, apparatus and programmed memory may be described in the general context of computer-executable instructions, such as program modules, being executed by a computer. Generally, program modules include routines, programs, objects, components, data structures, etc. that perform particular tasks or implement particular abstract data types. The invention may also be practiced in distributed computing environments where tasks are performed by remote processing devices that are linked through a communications network. In a distributed computing environment, program modules may be located in both local and remote computer storage media including memory storage devices.
With reference to
Computer 110 typically includes a variety of computer readable media. Computer readable media can be any available media that can be accessed by computer 110 and includes both volatile and nonvolatile media, removable and non-removable media. By way of example, and not limitation, computer readable media may comprise computer storage media and communication media. Computer storage media includes both volatile and nonvolatile, removable and non-removable media implemented in any method or technology for storage of information such as computer readable instructions, data structures, program modules or other data. Computer storage media includes, but is not limited to, RAM, ROM, EEPROM, flash memory or other memory technology, CD-ROM, digital versatile disks (DVD) or other optical disk storage, magnetic cassettes, magnetic tape, magnetic disk storage or other magnetic storage devices, or any other medium which can be used to store the desired information and which can accessed by computer 110. Communication media typically embodies computer readable instructions, data structures, program modules or other data in a modulated data signal such as a carrier wave or other transport mechanism and includes any information delivery media. The term “modulated data signal” means a signal that has one or more of its characteristics set or changed in such a manner as to encode information in the signal. By way of example, and not limitation, communication media includes wired media such as a wired network or direct-wired connection, and wireless media such as acoustic, RF, infrared and other wireless media. Combinations of the any of the above should also be included within the scope of computer readable media.
The system memory 130 includes computer storage media in the form of volatile and/or nonvolatile memory such as read only memory (ROM) 131 and random access memory (RAM) 132. A basic input/output system 133 (BIOS), containing the basic routines that help to transfer information between elements within computer 110, such as during start-up, is typically stored in ROM 131. RAM 132 typically contains data and/or program modules that are immediately accessible to and/or presently being operated on by processing unit 120. By way of example, and not limitation,
The computer 110 may also include other removable/non-removable, volatile/nonvolatile computer storage media. By way of example only,
The drives and their associated computer storage media discussed above and illustrated in
The computer 110 may operate in a networked environment using logical connections to one or more remote computers, such as a remote computer 180. The remote computer 180 may be a personal computer, a server, a router, a network PC, a peer device or other common network node, and typically includes many or all of the elements described above relative to the computer 110, although only a memory storage device 181 has been illustrated in
When used in a LAN networking environment, the computer 110 is connected to the LAN 171 through a network interface or adapter 170. When used in a WAN networking environment, the computer 110 typically includes a modem 172 or other means for establishing communications over the WAN 173, such as the Internet. The modem 172, which may be internal or external, may be connected to the system bus 121 via the user input interface 160, or other appropriate mechanism. In a networked environment, program modules depicted relative to the computer 110, or portions thereof, may be stored in the remote memory storage device. By way of example, and not limitation,
At block 210, the method may determine whether the entry in the general ledger is for a transaction between general ledger accounts that are treated differently in accrual basis accounting and cash basis accounting. For example, in
3 illustrates a grid that indicates which general ledger account type postings may be reviewed. Column 270 lists account types, row 272 list offseting account types and the intersection of the types indicates which posting between the accounts are to be reviewed. For example, if there is a posting between the credit card account 274 and the bank account 276, then the “y” in the block 278 where the credit card account 274 and bank account 276 intersect indicates that postings between these accounts are to be reviewed. Continuing to review the credit card account 274, at the intersection of the credit card row 274 and the inventory asset column 280, lack of a “y” and/or the presence of a grey block at intersection 282 may indicate that postings between these accounts will not be reviewed because transactions between these accounts would not be changed when switching from an accrual basis to a cash flow basis. In general, the following lists some examples of the different treatment of accounts in cash basis systems and in accrual basis systems:
Accounts Payable. Cash Basis: Unpaid bills are not part of the accounting system. Accrual Basis: Unpaid bills are expensed, whether or not the purchaser has physically paid for the goods in question.
Depreciation. Cash Basis: When fixtures or equipment are purchased, the purchaser pays cash and the item is expensed immediately. Accrual Basis: Purchases of major assets are expensed over their useful lives, perhaps on a three- or five-year schedule.
Inventory. Cash Basis: When inventory is purchased, it is booked as expense. Accrual Basis: Inventory is booked as an asset and inventory is only charged as an expense when the inventory items are actually used.
Prepaid Expense. Cash Basis: Bills paid in advance are treated as a simple expense. Accrual Basis: Advance payments are “held” as liabilities on the balance sheet and when the goods or services are received, the “real” expense is recorded.
Prepaid Revenue. Cash Basis: If a customer pays in advance or furnishes a deposit, it is simply treated as a current receipt. Accrual Basis: Advance payments are treated as prepaid revenue and they are recorded as “real” revenue when the goods or services are actually furnished to the customer.
Receivables. Under the cash basis, income is recognized when it is received. Under the accrual basis, income is recognized when it's earned, whether the cash is received or not.
Work in Progress. Cash Basis: The value of work in progress is ignored. Accrual Basis: Work in progress is recorded as an asset at the end of accounting periods.
It should be noted that the current system works at an even lower level by examining the specific postings between accounts and not just looking at broad totals in accounts. If at block 210 that the entry does not involving entries that need to be modified, the method may continue to block 240 and the balance sheet and income statement may not differ between the accrual and cash basis accounting basis.
If block 210 determines that the entry involves a transaction between accounts that are treated differently in cash basis accounting and accrual basis accounting then, at block 220, a modifying entry to convert the entry to cash basis is determine. For example, looking at
At block 230, the original accrual entry is modified such that it will now be proper under cash basis accounting. The modification can be a separate entry or the original entry may be temporarily modified. At block 240, a modified balance sheet and modified income statement based on the reversed payable and accrual entries may be created. Referring to
Referring to
The method also allows for the reversal of payables and receivables when either an entire amount has yet to be received or an entire amount has yet to be paid, or when the amount of payment or the amount of payable has not been identified as relating to a specific sale or to a specific purchase. For example, if a customer made a payment without specifying what invoice the payment related to, the payment may not have been applied to any invoice. The system will keep the income as phantom income and it would be displayed on a profit and loss statement as other income. For example,
Viewing
Similar changes can be seen in
Finally, the changes from the accrual based system to the cash based system appear in the reported net income. In the accrual statement 1210, net income is listed 1250 as $3,156.12 and in the cash statement 1220, net income is listed 1260 as $1,229.01, thereby illustrating the potential for net income to be modified by switching the accounting basis for a business.
