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I am starting a new business and we are going to use the cash basis of accounting. I'm a little stuck on what kind of current liabilities are used in this system. Do I have wages payable? Taxes payable? Accounts payable?

regardless on what type of recording method you use (being cash or accrual basis) the same liability accounts will be used. cash basis accounting doesn't match revenues and expenses, mostly benefical for small businesses.

In cash accounting you will not be using receivables nor payable accounts.. Rather income/expenses will be recorded when cash is received or paid...

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Accounting method in which income is recorded when cash is received, and expenses are recorded when cash is paid out. Cash basis accounting does not conform with the provisions of GAAP and is not considered a good management tool because it leaves a time gap between recording the cause of an action (sale or purchase) and its result (payment or receipt of money). It is, however, simpler than the accrual basis accounting and quite suitable for very small firms which transact business mainly in cash.

I would still use those accounts during the year to keep everything organized and intact, especially payroll and payables to keep track of what to pay currently, then make adjustments at year end to put it on cash basis for tax purposes.

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hi,

If your accounts payable increase for a period, it is an increase in cash. I do not understand how your cash has "increased" when there is not an actual inflow of cash and how does this "increase" affect you cash account ?

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UmutMaria,

When constructing accrual based cash flow statements, the terminology for an increase in accounts payable for a period is a "source" of cash, not an increase in cash. A decrease in AP represents a "use" of cash.

Increases in an asset or a decrease in a liability/equity is referred to as a use while opposite movements are referred to as a source.

Before the switch to an activity organized Cash Flow Statements, it was called the Source and Application of Funds Statement. It also included a reconciliation of the Changes in Working Capital. All changes in the accounts were referred to as either a source or use of funds.

"Before the switch to an activity organized Cash Flow Statements, it was called
the Source and Application of Funds Statement".

Helse requests of learned classical general ledger, Mr Pat, to instruct Helse on the history of:
"Source and Application of Funds Statement". Three sentences shall suffice.

Helse bows to Pat's history of accounting and ponders, is Pat an ancient practitioner or
student of general ledger accounting?

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