AP in relation to Cash vs Accrual

[ladyrider]

Ok so I have been an accountant for over 30 years and this one has me stumped. Probably just a DUH moment but gotta ask

I work for a gal that gets clients then passes them onto me to do their bank and CC recs in Quickbooks.

The clients all do their own customer invoicing and payment receipts then I simply deposit the undeposited funds into the bank when the statement comes out.

The new business we have now is doing something funky - even though he pays the bill on the spot with a Debit Card for some ungodly reason he creates a BILL in AP then applies the payment when the bank statement comes in. It's not a true AP item at all

Now my question: I was catching up his CC statements for the time from January til now and when I did January and some February he had some charges on those that went back to expenses (charges on his CC) in December BUT most of them had already been handled with his AP deal. December is already closed of course. I went ahead and charged the interest with a 2011 date but I left the old ones alone if they were in AP already since the expense had already been taken care of with the AP bill being issued and the payment was merely being posted. When I got all done my boss told me that there was a difference with cash vs accrual as far as AP goes. So now I am confused. It almost looks like the guy thinks he is doing Cash accounting but by him making AP bills up then that's a mixed bag and he is making AP on an accrual basis right? Since the expenses were already accounted for in 2010 then the actual CC payments in 2011 wouldn't effect 2010 right?

The entries were all

2010
DR - Expense
CR - AP

and on the CC statement ending January 15, 2011 there was a "payment" on 12/28/2010 for this AP item. And I dated it as such.
DR - AP
CR - Cash (or Credit card in this case)

I guess I don't understand how the payment in 2010 could effect the P & L if the expense was already accounted for?

Thanks.

I am not used to dealing with small businesses nor do I know the total ways of how QB handles things so any insight would be appreciated!

 

[Ivy Mike]

Cash vs. accrual is all about when you recognize expenses or revenues. If you recognize the expense when it is incurred, regardless of when the item is paid for (in cash), you are on the accrual system.

It sounds like the mixed classification is where the problem is coming from.

Since the expenses were incurred in 2010, and the P&L was generated based on those expenses, then payment in 2011 is irrelevant; the expenses have already been accounted for. Just because there is an A/P doesn't make it an accrual system, generating the P&L based on the transaction type does.

 

[ladyrider]

Cash vs. accrual is all about when you recognize expenses or revenues. If you recognize the expense when it is incurred, regardless of when the item is paid for (in cash), you are on the accrual system.

It sounds like the mixed classification is where the problem is coming from.

Since the expenses were incurred in 2010, and the P&L was generated based on those expenses, then payment in 2011 is irrelevant; the expenses have already been accounted for. Just because there is an A/P doesn't make it an accrual system, generating the P&L based on the transaction type does.

Thanks, I got this clarified with the gal I work for. What you explained here is what I was thinking and I just hadn't asked the question the right way. Thanks again