When to Use “Hybrid” Accounting Solutions

The accounting field has experienced multiple changes in the past few decades and it continues to evolve with the help of technology and information. While many of the principles remain the same, many accountants are changing how they report income within a company to better understand the financial situation and how it needs to change. This method, called hybrid accounting, is spreading rapidly within the field as it becomes increasingly useful. Here’s what you need to know about hybrid accounting to understand the role of this strategy in your future career.

Today’s accountants use multiple forms of bookkeeping to track finances. While there are two common methods of accounting that businesses use, more accountants are combining them to form a third hybrid method.

The cash receipts method of accounting is the easiest and is most often used by small businesses. It covers the cash and resources income based on when the payment comes in. For example, a small business might receive $12,000 in payments that month from customers. The cash receipts method is based on the resources a company has on hand that year.

While the cash receipts method is certainly easy, it doesn’t always paint an accurate picture of the business. As companies grow, they tend to switch to the accrual method, which reports what the company earned that year or quarter. Using the same small business example above, a company might receive $12,000 in payments that month, but they might have sent $50,000 in invoices for services performed. While this method might seem more complex, it’s ideal for startups trying to prove to potential investors or lenders that they have income in the pipeline, even if clients haven’t paid yet.

As the name suggests, the hybrid method is a mixture of the two. Companies might report both cash income and accruals to help determine cash flow and budgeting for future months. They can also use a hybrid method to help with inventory management and ordering supplies.

Using the same sample business once again, the company uses the cash they have on hand ($12,000) to buy supplies, but the accruals ($50,000) to decide what level of demand they should prepare for in the coming business cycle. Both elements work together to give decision makers better information to improve decisions.

Interestingly, “hybrid” accounting models vary by company and industry. Although the rules are set for cash and accrual accounting, companies and proprietors can decide what to report and how to report it with hybrid accounting. As long as they meet the regulations set by the IRS for reporting and presenting the information clearly to their shareholders, they can develop their own hybrid model to inform employees and decision makers on the health of the business.

This means that the structure of a hybrid accounting method varies based on a company’s size, products, industry, and operations. While some systems might be similar, it’s unlikely that two companies have the same hybrid system to showcase financial reports.
Many software platforms today meet this demand for hybrid reporting by allowing bookkeepers and analysts to develop their own reports from data collected. These reports are increasingly advanced with the help of Big Data and third-party sources. As accountants work in different positions over the course of a career, they will work with multiple accounting methods and can start to understand why businesses use them.

As accounting is changing, so are the skills used to succeed. Along with traditional math skills and soft skills like organization and communication, today’s accountants would be wise to polish their skill set to meet employers’ demands. Here are a few skills that can help as you enter the field and use hybrid accounting.

With more data collected than ever, companies are able to decide what information is a priority in reporting. While the federal government sets certain regulations for information that is required for reporting, financial departments have started adding more facts to quarterly and annual reports. Financial experts are able to evaluate large collections of data and compile them in a way that is useful and readable.

Some companies might not use hybrid accounting, but it’s appealing to new businesses and startups that never had any previous accounting processes. In this case, creativity is an increasingly useful skill to decide what should be highlighted in financial reports and how to lay it out in an easy-to-read way.

It’s no longer optional for accountants to use various software platforms to complete their work. At the very least, recent graduates should have a basic understanding of Excel and data analysis, but many companies expect more. Because software tools differ from company to company, tech literacy helps accountants enter a new position and learn the tools quickly and effectively.

As the industry evolves, smart financial professionals stay on top of the latest technology, reporting trends, and news. This allows them to use Big Data to give context to reports. For example, a retail company imports data from competitors as well as reports on consumer confidence to compare performance with other companies and earlier years. It will help the accounting team to be aware that this information exists — and how to get it — for their reports.

Hybrid accounting methods prove that accounting and finance require a great deal of problem solving and creativity, beyond the numbers, to give the business answers to difficult questions. By tapping into these skill sets, you may be able to put your employer in the best financial position possible to succeed.

A master’s in accounting can prepare you for all elements of the accountant’s role — from data analysis to critical thinking and creativity. To learn more about how a master’s degree in accounting can advance your career, visit Maryville University online.

Sources:

http://thismatter.com/money/tax/accounting-methods.htm

http://www.accountantnextdoor.com/hybrid-accountants-become-hybrid-accountant/

http://www.buzzle.com/articles/hybrid-method-of-accounting.html