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.
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
To balance this amount, Accounts Receivable increased by
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
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
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
To balance this amount, Accounts Receivable decreases by
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