Accounting Methods

This document explains the different accounting methods within the Point of Rental software. Choosing the correct accounting method is critical as it directly affects your income numbers and, consequently, your tax obligation. If you're considering changing your accounting method, please see our article Changing Accounting Methods.

Topics included in this article

• What are Accounting Methods

• Need to Change Accounting Methods?

• Cash Accounting

• Open Accrual Accounting

• Closed Accrual Accounting

What are Accounting Methods?

Accounting Methods refer to the rules a company follows in reporting revenues and expenses. Point of Rental breaks down accounting methods into cash, open accrual, and closed accrual. See the sections below to learn more.

Need to Change Accounting Methods?

If you're considering changing your accounting method, please read the article Changing Accounting Methods. 

Cash Accounting

Please note that Elite users can use this method, though API Accounting Software Integrations will only allow Batch export mode. This method is not recommended. Please consult with your CPA or accounting department to confirm your company's eligibility.  

Income is reported only when the entire contract is PAID IN FULL. Under Cash Accounting, no sales or income tax is due until the contract is paid. The IRS usually does not allow companies earning over a million dollars annually or companies with inventory on hand to be Cash Accounting.

💡The following restrictions apply to Cash Accounting only
 

1. Any payment or any partial payment of an Open or Reservation account contract will not be recognized as a sale until the contract is closed and paid in full.
    
2. “Charge by default” contracts for cash customers will not be recognized as sales until full payment is received. If the “charge by default” occurs upon return of the item (e.g., unpaid overtime), the entire contract amount will be subtracted from the current day’s sales. It will be added back when the full payment is received.
    
3. Sales tax - No sales tax will be charged until the contract is paid in full.
    
4. Category Income and Item Income will not match Contracts Posted Totals.
    
5. No Accounts Receivable for General Ledger journal entries.
   
   
6. Cost of Goods will be posted the day the contract goes to an open status.

Open Accrual Accounting

In Open Accrual Accounting, Income is reported when a contract is OPENED (whether paid or not), except for Reservations, which are reported when sent out.  This method can have large changes, including negative income days, if contracts are opened for a long period but closed at only a day’s rent.

💡The following restrictions apply to Open Accrual Accounting only

1. Any income generated is instantly reported once a transaction is in an Open status.
   
   
2. Sales tax - the Open Accrual Accounting method is usually used for companies with no sales tax but can also be used for one's own sales tax report. Some states do not charge sales tax.
      
3.  A/R - Contracts opened are part of A/R.
         
4.  Once a transaction is in an Open status, it can not be reverted back to a Reservation

Closed Accrual Accounting

In Closed Accrual Accounting, income is reported when a contract is CLOSED, whether paid or not. This is the most common accounting method. No tax liability is generated until the contract is CLOSED or monthly billed. This method does not have large changes since few modifications are made to closed contracts.
 

1. Income is posted when the contract is closed.
    
2. Sales Tax is collected when the contract is closed.
        
3. Called-off Rent and Continued contracts become part of A/R.
   
   
4. Partial payment on contracts will be put into a Suspense Fund.