Product: APROSQL, APro for Windows
Description:

Choosing an Accounting Basis (Cash or Accrual)

Solution:

Prior to doing any policy postings or accounting in the system you must determine your accounting basis, which can only be set by and Agency Pro Representative. While the accountant should have the last word on the accounting basis setting, following are some determining factors:

  1. Do you pay producers? If so, do you pay them up front the entire commission owed or only based on the amount you have received in commission?

  2. Do you have the need to keep client payments on account?

On an Accrual basis (GAAP recommended) the policy and income posts when earned (as of the effective date of the policy). The Client A/R functions will allow the agency to collect payments on account and do various account adjustments. Modified Accrual works the same but allows installment policies to post installment by installment instead of posting the entire policy as of the effective date. Agencies who do mostly agency bill are likely to want an accrual basis.

Cash basis accounting will post income only when the payment is applied. This means you must have a policy in place to apply payment toward. There are no receivable postings and what you see on the Client A/R is only notation until it has a payment applied toward it. Agencies that pay producers based only on what they receive are likely to want a cash basis.

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