Cash, Accrual, Deferred: What Does It All Mean?
We have prepared this guide to help you and your users understand how iMIS manages core accounting functions. With our vast experience in helping associations simplify their financial reconciliation, provide financial control recommendations, and integrations to accounting systems like MYOB and XERO, we can help you learn the iMIS financials.
If you are an accountant or bookkeeper, you need to know
iMIS uses double entry bookkeeping to record transactions. Every transaction entered in iMIS contains at least two lines: credit amounts are negative; debit amounts are positive and within a single transaction they sum to zero.
iMIS is a sales ledger, tracking income, cash receipts and debtor balances. The GL export process allows you to create journals from iMIS for import to your main accounting system, and an accounts receivable control account allows you to reconcile between the two.
If you are not an accountant or bookkeeper, you need to know
Double entry bookkeeping reflects the fact that every transaction affects two (or more) accounts in a balanced way, with the two sides of the transaction being termed credits and debits. One transaction in iMIS has at least two lines to reflect this.
You receive $100 for event registration. That is a credit of $100 to event income, and a debit of $100 to the bank account.
You invoice a member $100 for an event registration. That is a credit of $100 to event income, and a debit of $100 to accounts receivable (which tracks how much money you are owed).
When the member pays, that will be a debit of $100 to the bank account, and a credit of $100 to accounts receivable. The credit and the debit to accounts receivable balance out, and the net effect is identical to example 1.
Cash and accrual as general accounting methods
In cash accounting, you only record income and expenses as you receive or spend money. Example 1 is cash accounting.
Most of us manage our own finances this way, tracking what we are spending money on only as we actually spend it. You complete your personal tax returns on a cash basis too: you pay tax based on when you receive your salary, and claim deductions based on when you actually spend money.
In accrual accounting, you record income and expenses as you invoice, or are invoiced. Example 2 is accrual accounting: you count the income when you invoice the member, because you have a reasonable expectation that you will receive the money. When you receive the money you don’t count the income again: between the invoice and the receipt the amount of money owed is tracked using the accounts receivable account.
Most organisational and corporate accounting is done on an accrual basis.
Cash and accrual for iMIS transactions
iMIS uses accrual accounting for orders/commerce and events: the income is recognised on invoicing, not on payment. Amounts owing will appear on customer account statements.
In the fundraising module, iMIS uses cash accounting for single gifts, and accrual accounting for pledges. The invoice transactions for future pledge instalments are future-dated, so that the income will only be recognised when it is expected.
In the billing/membership module, you can choose to use cash or accrual accounting: you can use different methods in different billing cycles. Amounts owing from accrual billing will appear on customer account statements; amounts owing from cash billing are reflected only as an invitation to pay and so renew membership.
Even if an organisation is using accrual accounting, it is still acceptable to use cash accounting for billing, especially when those invited to renew have no legal/contractual obligation to do so.
Accruing income and the iMIS deferred income module
In this context, accrual refers to the process of recognising income in the period it applies to, rather than either when the cash is received or when an invoice is raised. The iMIS deferred income module handles this, and works with both accrual accounting and cash-based billing.
Income is still recorded in line with the accounting method being used, but it is recorded as income in advance, and is only recognised as income in the correct time period.
The deferred income module only works alongside the GL export process. When the GL export process is run, each income transaction line being exported is evaluated to determine whether it is to be recognised immediately or treated as income in advance.
Accruing income for membership
Where the deferred income module is being used, iMIS records membership income as income in advance on receipt (for cash billing) or on invoice (for accrual billing). It is then recognised as income split evenly over the months that the membership is for.
Where membership fees are paid late, then some income will be recognised immediately. For example, if a member is billed on a cash basis for January to December and pays in February, 2/12 will be recognised as income in February and 10/12 will be recorded as income in advance to be recognised over the remaining 10 months.
Accruing income for events
Where the deferred income module is being used, iMIS records event income as income in advance on invoice. It is then recognised as income in the month that the event is taking place.
Prepayments and “prepayments”
The prepayment process in iMIS is used where money has been received for an order before an invoice has been raised. The debit to bank is balanced by a credit to prepayments. This credit is tagged for the order and will automatically be applied to settle the invoice when it is generated; it cannot be applied to anything else unless the order is cancelled before being invoiced.
When you enter a payment in iMIS, it is typically applied to a customer’s outstanding invoice(s) or membership billing, but you may have noticed that it is possible to record it against a new line labelled by default “prepay”. These are not like system prepayments, and amounts entered in this way are available to be applied to any outstanding balance.
Do you have an iMIS financial integration project or want to find out how Causeis can improve your financial reconciliation processes?
We can help your association to streamline the financial management and reconciliation of iMIS to your accounting system. We have helped many associations to integrate to accounting packages including MYOB, XERO, Sage and more, along with overhauling their financial control in iMIS. Combined with our suite of financial management reports, process improvement and end-user training we can assist your association.
Reach out to us on 1300 CAUSEIS (1300 228 734) or feel free to send us an email at firstname.lastname@example.org