How to Make the Most of Your Cash-Basis and Expense Reports

 Cash-basis reports

In fact, one of the real advantages of using QuickBooks Online, you and your customers can run cash-as-and-accrual-as-you-would-like-to-run reports from one set of accounting books. QuickBooks Online generates cash-as-a-service reports by removing unprocessed A/R and A/P transactions.

Balance sheet

The A/R balance and A/P balance should always be zero on a cash basis balance sheet. Open bills and invoices that have a balance account on the distribution line (or target line) are not reflected in the target balance. For example, a client may have created a bill to account for the purchase of fixed assets such as equipment or to pay off the principal of a loan. Another example is a client may have used an invoice to account for a deposit or prepaid payment on a job or to account for used items mapped to assets such as inventory or work in process. These transactions would not be reflected on the cash basis balance sheet, asset/liability, A/P, or A/R accounts.

Profit and Loss

Income and expenses recorded in a cash-basis Profit and Loss statement are limited to only those that have been received and paid, respectively. Omitted from this statement are any figures related to outstanding bills or invoices. QuickBooks Online employs the Paid status of a transaction at the time of reporting to ascertain its eligibility for inclusion in the cash-basis report.

Credit card accounts

QuickBooks Online operates within a cash-basis framework whereby transactions are treated as if they were paid in cash when a business records credit card activity to a credit card liability account. Unlike the A/P account, QuickBooks Online does not reverse these entries. The balance sheet in a cash-basis setting displays a balance in the liability account, with the expenses incurred through credit card payments being reflected in the cash-basis Profit and Loss statement.

It is pertinent to note that the Profit and Loss statement will consistently capture expense transactions irrespective of the reporting basis employed (cash or accrual). Nonetheless, a bill will always undergo reversal in a cash-basis Profit and Loss statement.

Cash-basis reports and unapplied cash

Unapplied customer payments

When clients record a customer payment through the Receive Payment interface without allocating it to a specific invoice, the cash-basis Profit and Loss statement will classify it as Unapplied Cash Payment Income.

In these cases, QuickBooks Online:

• Debits Accounts Receivable (A/R), and
• Credits Unapplied Cash Payment Income

Unapplied bill payments

Likewise, in cases where a bill payment transaction lacks an associated bill or when an expense or check is recorded in accounts payable, the cash-basis Profit and Loss statement will reflect this as Unapplied Cash Bill Payment Expense.

In these cases, QuickBooks Online:

• Debits Unapplied Cash Bill Payment Expense, and
• Credits Accounts Payable (A/P)

More information about Unapplied Cash accounts

The adjustment of the Unapplied Cash Payment Income and Unapplied Cash Bill Payment Expense accounts is restricted. Analogous to the Retained Earnings account, QuickBooks Online utilizes these accounts in the background to reconcile the A/R and A/P accounts to a zero balance. Upon scrutinizing the cash-basis Profit and Loss for any of the Unapplied Cash accounts, engaging in a transaction, and examining a transaction journal, the account would not be visible in the report.

The reporting on a cash-basis is influenced by the transaction date. When a customer payment precedes the invoice date, it is displayed as Unapplied Cash Payment Income in reports generated for dates prior to the invoice. Furthermore, adjustments to COGS through inventory are omitted from this report as invoices capture this information, and the report predates the invoice.

Similarly, a bill payment predating the corresponding bill, with the cash-basis Profit and Loss report falling between the two dates, results in the bill payment being classified as Unapplied Cash Bill Payment Expense.

 

What happens when your client enters a bill to reduce the credit card liability account?

When a customer records a bill to decrease the balance in the credit card liability account without making the payment, in the context of cash-basis reports in QuickBooks Online, the system will present the bill amount under Unapplied Cash Bill Payment Expense instead of offsetting it against the credit card liability account.

In case the customer follows a cash basis for tax purposes, it becomes necessary to manually adjust the relevant amount outside of QuickBooks Online to ensure accurate reflection on the tax return. In instances of frequent occurrences of this nature, it is advisable to suggest to the customer to retain the outstanding amount in the credit card liability account rather than generating a bill. This approach eliminates the need for reversing entries against Unapplied Cash Bill Payment Expense.