The accounting method displayed in the Maintain Company Information window determines how Sage 50 handles general ledger, accounts receivable, accounts payable, and payroll transactions. Once you choose the accounting method and complete the New Company Setup wizard, you cannot change it for this company.
Accrual Accounting: Income is recorded as you invoice customers, and expenses are recorded when you receive bills from vendors, regardless of when cash is actually exchanged. This presents a truer picture of income and expenses. Most companies use this method.
Cash-Basis Accounting: Income is recorded when cash (checks, money orders, or currency) is received, and expenses are recorded when paid. However, unpaid credit sales and purchases do not show on ledgers, which can present a misleading picture of income and expenses.
If you use cash basis accounting, you may discover that the inventory valuation report does not agree with the general ledger account for inventory. This is because inventory uses the accrual method, while the general ledger is set up on a cash basis. This means that the inventory records will be updated to reflect unpaid purchases and sales, while the general ledger will not be updated until actual money changes hands.
Tip: Check with your accountant to determine the best accounting method you should use for your type of business.