Understanding and Selecting the Accounting Methods

Defining

Method

Overview

Accrual

Transactions are recognized as they occur, whether or not cash is received or paid. This option should be used if your organization recognizes the income for your services when billed rather than when the cash is received.

Cash-Based

Transactions are not recognized as income until cash is received or paid. Cash receipts are treated as revenues, and cash payments are handled as expenses. This option should be used if your organization recognizes the income for your services when the cash is actually received, rather than when they are billed.

Open Items

Using open items, you can create and apply payments and other credits to specific charges rather than a running balance on the student's account. Open Items remain accessible until they have been paid, no matter how old they get.

Open items also allows you to track and report open (unpaid) items individually as opposed to tracking by subsidiary. When payments or additional charges are created, they can be assigned to this particular open item and these transactions get the original open item's transaction Source Code, Group Number, and Trans Key Line Number.

A $50 charge is generated against the charge code BOOKS. Its source code is MS, its group number is 1000, and its transaction key line number is 1.

A $50 payment is received. Using the Receipt Entry window, you can assign this payment to any debit open item. Once this payment is assigned to an open item, the receipt transaction stores MS, 1000, and 1 in the Open Items source code, Open Items group number, and Open Items key line number. Based on this association, you can track the sum total transaction history for each open item.

Since the $50 payment received was applied to the $50 BOOKS charge, that transaction is no longer considered an Open Item.

Open item transactions are created when student charges are generated, receipts are entered, credit card payments are authorized, bookstore amounts are disbursed and/or adjusted, transactions are imported from General Ledger, payments are voided, and financial aid is distributed or adjusted.

You must be licensed for Open Items (OI license code).

Balance Forward

Using balance forward, you can transfer account balances from one term to the next term thereby keeping a running balance. When payments are made, the amount is applied directly to the student's balance on that subsidiary. Statements display a balance forward (unpaid charges) and all transactions that occurred since the last statement. These balances may be negative amounts.

Combining

There are three possible combinations for setting up Accounts Receivable accounting:

Accrual, Open Items

Payments and charges are applied directly to individual billing line items as opposed to a running account balance.
Statements list every unpaid transaction in date sequence allowing the student to see the balance breakdown.

Accrual, Balance Forward

Payments and charges are applied to general running account balances that can be carried over from term to term. When payments are made, the amount is applied directly to the student's balance on that subsidiary. Statements display a balance forward and all transactions that occurred since the last statement.
Statements display one totaled amount that includes all transactions from the current and previous months. Students cannot see what makes up the amount.

Cash-Based, Open Items

Payments and charges are applied directly to individual billing line items as opposed to a running account balance.
Statements list every unpaid transaction in date sequence allowing the student to see the balance breakdown.

This configuration is typically only used in circumstances when a sub-set of the organization operates independently but needs to send income transactions to the main organization on a consistent basis. This is used when the organization needs to recognize the revenue at the time payment is received.