I'm not an accountant, but my understanding is that the difference is solely in reporting. Under cash based accounting, income over some report period is the accrued income over that period minus the change in A/R over the same period. This seems to hold for my business; does someone here know whether it's correct generally?

I have a custom report that computes my business' P&L this way. I'm happy to clean it up and publish it if someone can corroborate the correctness of the approach.

Note that correct cash basis expense reporting is harder because credit cards are not treated as A/P. I think the report could still figure it out, I just haven't done it yet.

A larger question on this topic: the income and P&L reports in gnucash have options that allow you to select the set of accounts to consider when making the report. Is there value in that, or would it be better to compute the report using all accounts of the appropriate account types?

In my understanding, doing accounting on accrual basis involves much more than using the business features of GnuCash. It is a discipline to be followed, not a technical aspect of the accounting tool. But if we can seriously discuss the matter, then the first problem is that GnuCash documentation currently warns that users should never manually add accounts to the classes "accounts receivable" and "accounts payable", because these classses are exclusively reserved to the GnuCash business features. Therefore, there may be other accounts that belong to these classes by nature, but are not explicitly classed as such. So either the documentation should allow the user to use these classes outside the business features, or GnuCash needs to provide some other way for users to tag accounts with this property. Only when an agreement is reached for this problem, is the time to consider which reports and other features (such as closing books) are affected and how.

@Neil

Either way, it's 2017 and the developers still haven't implemented this feature. What are you guys waiting for, 2020?!? This is a highly requested feature, why haven't you guys developed it yet?

This is a reporting issue not a chart of accounts issue. We run our businesses on accrual methods with invoices and payables, but for tax reporting we are required to report on cash basis because we elected cash basis reporting with our first tax report filing when we started our business. Having to monkey around with G/L entries to convert to cash, then back to accrual at the end/beginning of a period is not very user friendly and is error prone.

The rules should be pretty simple for cash reporting.
1. Ignore receivables and payables for balance sheet reports.
2. Only count expenses for payables that have been paid.
3. Only count income from invoices that have payment received.

This only needs to be an option for reporting.

Could this be a solution and not that complicated to develop?

1) Make an A/Receivable account Liabilities:Tax:Sales:Tax Receivable
2) Make an A/Receivable account Assets:Accounts Reveivable (What most people will have already)
3) Set up a Tax Table with account Liabilities:Tax:Sales:Tax Receivable
4) When making an invoice use account Assets:Accounts Reveivable for the income excl tax (as usual)
5) When doing a payment on an invoice, select the account where you want to transfer your income from sales to.
6) TO DEVELOP - Select an account where you want to transfer your income tax to - if(accountTax == AReceivable){ taxTransferAccount(); }

This is just for sales tax and will do if you don't use bills.

Manual solution:
6) When you register a payment on an invoice, do a transfer from the Tax Receivable to Tax Received

I have just recently downloaded and started using GnuCash. For the most part, I love it and it looks like most of its weaknesses have been thoroughly discussed by the users. Today, I was wondering about cash versus accrual account reporting. It really would be desirable to be able to do both upon selection. I have used QuickBooks in the past. Though I'm not a big QuickBooks fan, it was pretty easy (as I recall -- it's been a couple of years) to get a cash or accrual based report. On the report specification page, at the time one runs a report, one simply selects cash or accrual. There is no need for any change in the chart of accounts. I don't know what happens behind the scenes but if you select cash, you get a cash basis report and if one selects accrual, one gets an accrual based report. Anyhow, that's how I recall it. And, I whole heartedly agree that it would be very desirable to have such a capability in GnuCash.

I'd like to echo some of the other comments. I recently started using the invoice feature. Now, my P&L and Balance Sheet reports are no longer "correct" for me. QuickBooks has the "Cash" or "Accrual" option when the reports are generated. This is real drawback for US small business. We need accrual method reports for our own internal tracking. We need cash method reports for tax purposes.

Cash and Accrual Based Accounting have different strengths and weaknesses, and it would be beneficial to have both options available in GnuCash. Thumbs up for an option to allow switching between Cash and Accrual based accounting.

Key

Cash and Accrual Based Accounting have different strengths and weaknesses, and it would be beneficial to have both options available in GnuCash. Thumbs up for an option to allow switching between Cash and Accrual based accounting.

Quikbooks allows the user to select cash or accrual at the time reports are generated. This is nice because it allows one to use cash for tax purposes and accrual for purposes of knowing how things are going. Accrual is generally recommended for all businesses - because it provides better management information - but cash is allowed for tax purposes for some jurisdictions and some business types. In at least one case (Canada/Farms) there are tax advantages to cash-based accounting.

So ideally this would involve, at report time, checking all payments/receipts from within the interval and tracing them back to the invoice/bill to which the correspond, regardless of the time at which the invoice or bill was posted.

I'm not an accounting expert, but I think the biggest change for the coders is to change the way the reports work. When an Income/Expense report is generated, the report should be configurable to use accrual or cash so it will select the right transactions for the report period.

I am facing this problem: I set up my invoicing in GnuCash in what seemed the obvious way, and it resulting in accrual accounting. But my business is small and should be using cash accounting.

A partial solution to this problem might be to have instructions about how to do invoicing in a way which which works like cash accounting, i.e. one enters line items in an invoice, but they don't get posted to accounts until the customer pays the invoice.

It would be great indeed if GnuCash could support accrual "and" cash accounting. It has nothing to do with the chart of accounts. Basically, when the cash is received for a sale, it is recorded in the accounting books as a sale. This is in contrast with accrual accounting, where revenue and expenses are recorded when they are incurred.

Today in GnuCash, if one enters an invoices or a bill it gets registered - after posting - in the A/R or A/P account and the appropriate income/expense account. Payments go against the A/R resp. A/P account. In cash environment the A/R and A/P accounts don't get touched. The problem is if I wanna use the reminder function for invoices/bills I need to post theme and therefore I am automatically in the accrual way of accounting. So the solution I guess lies in the handling of the invoice and bill function.

The issue for the developers here is that it isn't clear at all where in the program the user is set for "accrual accounting" rather than "cash accounting". From my understanding, the choice for one or the other just results in the way the chart of accounts is set up by the user. Do you suggest the program should enable the user to switch from one chart of accounts to another?