Modified Cash Accounting Method

Hey there,

I’m starting out an e-commerce (Amazon) business. Right now, I’m doing my accounting using the cash method because of simplicity. Some experts though say that it might lead to mistakes and suggest a “modified cash method” instead (without having to go full accrual).

This method is described as follows: “You can simplify your typical short-term income and expense transactions and process them using the cash method. The longer-term transactions such as inventory purchases, are treated as an accrual type transaction. This method allows you to see how profitable you were on the sales you made during the month without significantly increasing your accounting tasks.

To use modified cash for inventory:

1. Inventory is recorded as an asset when it is purchased,

2. At month end, you reduce this account with a journal entry to Inventory and Cost of Goods Sold. This gets the value of what you sold onto your Profit and Loss report and removes the inventory sold from your inventory account on the Balance Sheet.”

Would you be able to help me implement this in Zoho Books with possibly some step-by-step instructions. Not sure if that description is enough but please, give it a try.

Thank you ever so much.

Enrico

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