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Cash basis transaction report example

A cash basis transaction report can look complicated when the report includes items that post to balance sheet accounts. The report must show a balancing entry for each amount.

Example: Payment in full for an invoice

For example, suppose you sold an item from inventory. The item's cost was $10.00; its sale price was $25.00.

  • Transaction 1: Decrease in inventory

    When you recorded the invoice, you sold an item whose value as inventory was $10.00. Accordingly, your Inventory Asset account decreased by $10.00.

    To balance this amount, Accounts Receivable increased by $10.00.

  • Transaction 2: Increase in COGS

    When you applied the customer's payment to the invoice, you incurred the cost of selling the item. Accordingly, your Cost of Goods Sold account increased by $10.00.

    To balance this amount, Accounts Receivable decreased by $10.00.

  • Transaction 3: Decrease in sales

    Because the customer's payment was $25.00, the Sales account (where you track sales income) decreases by $25.00. (The account decreases because accounting conventions treat income as a negative number.)

    To balance this amount, Accounts Receivable increases temporarily by $25.00.

  • Transaction 4: Increase in Undeposited Funds

    The Undeposited Funds account increases by $25.00, the amount that the customer paid. (Undeposited Funds is where QuickBooks "holds" money you receive until you deposit it in a bank account.)

    To balance this amount, Accounts Receivable decreases by $25.00.

What is the net effect on the accounts?

  • Inventory Asset decreases by $10.00.

  • Cost of Goods Sold increases by $10.00.

  • Sales decreases by $25.00.

  • Undeposited Funds increases by $25.00.

  • Accounts Receivable remains unchanged.

Note that the total of all the changes is $0.00. Your accounts are in balance.

11/18/2017 1:13:31 PM
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