set up accrual accounting

[chadwhitacre]

Right now we account for our operations on a cash basis with a spreadsheet. Sooner or later we should implement a proper accrual system. I'm thinkin' Xero (cf. gratipay/gratipay.com#1039).

[techtonik]

What is accruel? Can it be simplified? We need a system to do accounting, right?

[chadwhitacre]

There are two kinds of accounting: cash (simple) and accrual (robust). We've been using cash accounting so far. Accrual accounting is more powerful but more complex.

https://en.wikipedia.org/wiki/Basis_of_accounting

[techtonik]

I really bad at reading that accounting terminology. Found this https://www.khanacademy.org/economics-finance-domain/core-finance/accounting-and-financial-stateme/cash-accrual-accounting/v/accrual-basis-of-accounting

[techtonik]

Looks like a problem with cash accounting is that cash doesn't have tags. So you can't track what money is for what, what are debts, what are payments in advance, for which demands. It looks like you just mix all stuff in and can only track income and expenses at certain intervals. I see why it is mostly useless. =)

[chadwhitacre]

I've gone back and dusted off our Xero account:

[chadwhitacre]

I've linked our PNC account and our PayPal account.

[chadwhitacre]

Alright, this is getting interesting. I've been reconciling our PNC account with Xero, and I've been handling the influx of money from PayPal as a transfer from a PayPal account to a bank account. But when I get to reconciling our PayPal account in Xero, what am I going to do with the influxes of money from Gratipay?

One option might be to add Gratipay as a "bank account" so that I can handle it as a transfer:

In that case, Gratipay would export a feed that Xero could consume, and we'd reconcile transactions within Xero just like with any other bank (or PayPal) account. Depending on how someone was using Gratipay, they'd have income and expense transactions, eventually including payroll expense. We've been talking about Gratipay vis-a-vis banks (with reference to PayPal) over at gratipay/gratipay.com#1383 (comment).

Xero also has a "payment services" feature under their invoice template settings, and it includes a "custom URL" option:

This assumes that the business is invoicing customers up front and wants to include options to pay on the invoice. Gratipay implements self-billed, pay-what-you-want invoicing, so the model doesn't quite fit. Xero does have a guide on handling payment processor receipts, but even then, Gratipay isn't a simple payment processor, because of a) payroll, and b) receiving and giving in the same cycle. If The Enterprise receives $1,000 on Gratipay, gives $100, and distributes $800 in payroll, then their PayPal account will only see $100, but they need to report $1,000 in income and $900 in expenses, not merely $100 in income.

[chadwhitacre]

Soooo ... Gratipay is "not a bank," but it plays one on TV in your company's books?

[chadwhitacre]

I've reconciled the most recent info that Xero was able to bring over from PNC, but I'd like to go back and enter and reconcile all of our past history that we've maintained on our finances spreadsheet.

[chadwhitacre]

As of gratipay/gratipay.com#3786 (comment) I'm thinking of this as the over-arching ticket for whatever accounting features we need to add to gratipay.com. We need a proper accounting system, and accounting for our escrow is a part of that. Therefore, the next step would seem to be setting up Xero to include both our operating and escrow accounts, and then the conversation with the CPA tomorrow can be about making sure our books are set up sensibly. I'm going to pause gratipay/gratipay.com#3786 for now, and focus on Xero.

[chadwhitacre]

The total balance in escrow is shown on a company's balance sheet at the end of every period, either as a liability or in a section between liabilities and equity. The separate bank account that the escrow funds are held in is shown as a current asset outside of the company's operating account. In this way, the escrow funds are both an asset and a liability in the company and are a "wash." However, the accounts cannot be netted against each other because they must be visible as both asset and liability according to GAAP.

http://www.ehow.com/info_11384335_accounting-treatment-escrow-account.html

That and http://www.tdi.texas.gov/title/documents/BASICS.pdf are the best info I've found so far on setting up books for an escrow.

[chadwhitacre]

Pooled escrow accounts may require individual client ledgers.

http://www.ehow.com/info_12119449_accounting-journal-entry-amounts-held-escrow.html

[chadwhitacre]

To: Peter Fleming, CPA

Are we still on for tomorrow at 1:30pm?

[chadwhitacre]

Xero is going to have both our operating and escrow accounts in it. It'll take some work to bring all of our operating history into Xero, but that's not the interesting stuff. More important for tomorrow is the escrow accounting, so I'm going to focus on that first. I'm going to import our escrow history into Xero.