When you run cash basis reports, unexpected lines and amounts will appear. These may not only confuse you, but convince that the report is incorrect. The reports are, indeed, complex, but they are not incorrect.
Be aware that a cash basis report may show several lines whereas the corresponding accrual basis report will show only one line for a transaction. To record cash basis income, QuickBooks Desktop must establish a link between a Payment and every item on an Invoice.
For the most part, we talk about the cash basis P&L report, but the same applies to other reports, e.g., Sales by Item Detail, Custom Transaction Detail, etc.
You must remember that cash basis accounting is best used with cash basis transactions: Checks, Sales Receipts, Credit Card Charges, etc. Most companies simply cannot do that and find it necessary to use accrual transactions (those affecting A/R and A/P).
QuickBooks Desktop recognizes all negative lines the same as Customer Payments or Bill Payments:
Discount items do not have the same effect. If you need to add a discount to an Invoice, use a Discount Item. You cannot use a Discount item on a Bill.
If you can, use a Bill Credit and Credit Memo to enter credits, refunds, item returns or discounts.
Be aware that a partial payment leaves an invoice/bill as partially open so that it still shows in the Open Invoices/Unpaid Bills report.
Be aware that multiple payments can cause a transaction to have multiple lines on multiple report.
Inventory is always reported on the accrual basis. If you use inventory, you should consult with your accountant and consider using accrual basis reporting. See the section below.
Suppose a Bill/Invoice contains five items and is paid with a single bill payment check or customer payment, the report shows five lines for the Bill/Invoice and the Paid Amounts are the same as the Original Amounts.
You send an Invoice, dated on March 1, with a single item, to your customer. He sends one Payment on March 15 and a final Payment on March 31. Your cash basis P&L Detail for March will show two lines for this invoice:
To record cash basis income, QuickBooks Desktop must establish a link from a Payment to each item on the Invoice. Since there are two Payments, there are two links to the item on the Invoice and two lines on the P&L Detail report.
If the Invoice has two line items, there will be four links and four lines on the P&L Detail.
QuickBooks Desktop allocates the discount across all of the positive sales items and establishes a link between the negative item and each of the positive sales items. Thus, if you an invoice with 2 positive sales items, one discount, and the one Customer Payment, your P&L Detail report will show 2 lines for each positive sales item, one link to the discount and on link to the payment.
Suppose the first item is $100, the second item is $50.00, the credit is $20 and the payment is $130. Then the P&L Detail will show:
You can avoid this result on your reports by using a Discount type item instead of a Service or Non-Inventory Part item; or by recording all Payments in the Receive Payments window.
This is usually caused by multiple transactions in different periods.
For example, you create an Invoice on March 1 and record a down payment provided by the customer. The customer then pays half of the balance on April 1 and the final Payment on May 1. Then:
The analogous accrual basis report shows the invoice only in March.
This is likely caused by a negative item on the invoice or bill. The negative item item is really a payment so the invoice or bill is partially paid, and is being recorded as income in the period that contains the date of the invoice/bill.
Cash basis records income and expenses on the date that cash changes hands, except when you are buying or selling inventory. Inventory transactions are always recorded on the accrual basis. When you QuickZoom on a summary report, the detail report will show both the the date on which the sale/purchase was made and the date on which the cash changed hands.
A cash basis custom transaction detail report, for an invoice, with an inventory item, appears to be complicated because you are entering accrual transactions and reporting them on a cash basis.
In an invoice, the source account is Accounts Receivable (A/R) and the Target accounts are Sales, Inventory and COGS. In a payment, the Source account is Cash and the Target account is A/R.
Why are there four entries to A/R when there should be no entries to A/R on cash basis reports? Because of date, cash basis and matching requirements, the simplest way to represent the transaction is the separate it into its four individual elements and offset each element to a wash account. In this case, we select the invoice's Source account, Accounts Receivable, as the wash account.
Invoice Source Account
Invoice Target Account
On 8/1, we receive $25.00 from the customer. Now we can enter a credit to Sales and offset the credit with a debit to the wash account:
Since we have recorded the sale, we can record the matching cost, so we debit COGS for $10.00 and credit the wash account:
Payment Source Account
Payment Target Account
The net effect on the accounts is that :
As a comparison, enter a sales receipt, a cash basis transaction, for the inventory item and date it on 8/1. The custom transaction detail report will show four lines: a debit to cash of $25.00, a credit to sales of $25.00, a debit to COGS of $10.00 and a credit to Inventory of $10.00, very straightforward.
Three columns can help you understand cash basis reports:
Suppose you enter a Bill from a vendor for $100 containing an $80 item and a $20 item. Later, you enter a Bill Payment for $10 and apply it to the $100 Bill. Run a Custom Transaction Detail report for a date range containing the dated of Bill Payment and add the Paid Amount and the Open Balance Columns. Then: