Cash Basis Journal Entry

[Ericcohen]

When posting a manual Journal Entry (db. Expense & cr. Accrued Expenses), it always shows up in Cash & Accrual Reporting.  However, I want to be able to record accrued expenses without running them through AP.  Is there any way to post a Journal Entry for just Accrual Basis Books and not show up on the Cash Basis besides through AP?

[john-pero]

If you enter a Vendor Bill it will be a current expense under Accrual but will not show in Cash accounting until you pay it. Same with income, record an Invoice and under Accrual it is today's income even if customer never pays you.

What you have to realize is that journal entries bypass the distinction between cash and accrual

[Malcolm Ziman]

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@john-pero wrote:

What you have to realize is that journal entries bypass the distinction between cash and accrual

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Just yesterday there was a discussion about this.  It seems that in Desktop it depends on which entry is on the first line of the JE, which seems to be a way to control this, but in QBO it makes no difference which entry is on the first line 

https://community.intuit.com/questions/1782280-my-clients-are-on-a-cash-basis-is-there-a-reason-that...

[Malcolm Ziman]

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@Ericcohen wrote:

 Is there any way to post a Journal Entry for just Accrual Basis Books and not show up on the Cash Basis besides through AP?

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I tried a zero Bill with expense on 1st line and other current liability account on the 2nd line as a negative to offset, which you would think would work but does not. The expense still shows up on a cash P&L.  So it seems there is no choice but to go through AP

[Ericcohen]

Yeah, I have not found a workaround which is pretty frustrating.  There are times we need to record items outside AP and show in other liability accounts.

[qbteachmt]

AP and "accrued expense" are the same thing; the purpose of AP is to Accrue Expense to be paid later.

[Malcolm Ziman]

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@qbteachmt wrote:

AP and "accrued expense" are the same thing; 

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Not always. Eg. You may want to accrue salaries & wages.  That is not AP

[pprivon]

The link shown above is no longer valid and I can't find the response. Is someone able to provide the new link to this resource?

[Jovychris_A]

The link may have been removed since this was posted three years ago, @pprivon.

This is the exact verbatim of the customer on this post when I try to extract the words from the link: "my clients are on a cash basis is there a reason that all of a sudden my journal entries are not showing up on a cash basis report but they are on an accrual basis?"

The answer would be similar with the accountants and professional QBO users advice above this thread.

For more details about the cash and accrual basis of accounting, you can refer to this article: Choose between cash and accrual accounting methods in reports.

Please feel free to leave a message below this thread if you have more questions. The Community is always here to help. Stay safe and well!

[paxcpa]

I want to ask for confirmation on this - Is there no way to have journal entries for accruals (separate from AP activity) excluded from cash basis reporting? Specifically, I do payroll accruals for each month end, but if I want to see cash basis month to date expenses, I don't want that accrual or its reversing entry included in the cash basis payroll expenses - it skews cash basis because the JE its including doesn't touch a cash account.

For example, a client may have had two payrolls in June so far, but because the reversing entry from May month end is showing in cash basis for June, it's offsetting the cash basis payroll skewing the expense to be way too low.

[katherinejoyceO]

Thanks for joining in this conversation, @paxcpa. 

To give you an insight, the journal entry is a transaction that hits directly to your account. Hence, it will always show on the reports regardless of the accounting method used (cash or accrual basis). 

I know how relevant to have the journal entries for accruals excluded in the cash basis reporting. At this time, we don't have an option to filter it. 

For additional guidance in choosing the right accounts to use for your business, I'd recommend contacting your accountant. They're the best person to help correct your books as well. 

For future reference, read through this article: Customize reports in QuickBooks Online. It helps you learn about how to personalize your reports and add the info that matters most to your business. 

[kpappas]

Adding here how frustrating it is that  QBO treats JEs as cash. It falisfies cash basis reporting then. How incredibly unhelpful!!

[stalwart]

Commenting to get more attention on this - Cash Basis without even a * does not explain QB limitation in its product. Need to better communicate.

[Rainflurry]

"Is there no way to have journal entries for accruals (separate from AP activity) excluded from cash basis reporting?"

You can enter a bill for the accrued payroll expenses.  Then, when you run a P&L report on cash basis, it will exclude those expenses on the P&L.

All accounting systems have limitations, QB is no different.  J/Es hit the financial statements as soon as they are entered.  The workaround is to enter a bill and then QB can differentiate when they hit the financial statements based on whether you're on cash basis or accrual.  

[Rainflurry]

J/Es hit the financial statements as soon as they are entered. That begs the question of why would you want to do a J/E for an asset, liability or equity account that you don't want to show up on the financial statements?  That would be shady accounting. 

The way to handle that in QB is to enter a bill for an expense/payable or an invoice for a receivable and then, when you run a P&L report in QB, you can choose between cash and accrual basis.  If you choose cash, bills and invoices entered do not hit the income statement until paid.

[Peacockinaseaofpenguins]

What exactly is my client paying $480 a year for in QBO?

My client bought into Quickbooks assuming the cash basis financial presentation for his taxes would be an accurate representation to the IRS.  Now I'm finding out it's not?  This is downright fraudulent and misleading to everyone involved.  What is QB definition of the difference between cash and accrual basis does the button do on the profit loss statement?  How is it different from GAAP?

The more I use Quickbooks the more I'm realizing what a poorly designed program it is.  I really think we might be better off with pen and paper.  Quickbooks: Fix this.  Accurate financial presentation is way more important than figuring out the bugs in your mileage software.  If your software isn't accurate what's the point?

[HSullivan]

What other accounting software package is there that will actually create true cash reports?  I've spent several hours on the phone with QuickBooks and they can not help me.

[Rainflurry]

@Peacockinaseaofpenguins 

If you enter bills for expenses and invoices for sales, QB can differentiate cash vs accrual accounting methods.  For accrual-basis, income and expenses will hit the income statement as of the date of the bill/invoice.  If you're on cash-basis, income and expenses hit the income statement when payment is made or received.  Journal entries always hit the income statement as of the journal entry date.  How does that not provide accurate financial statements?

[PeterDB]

I don't understand why they can't implement a system of designating certain accounts as "accrual" to let QuickBooks know to keep track of it in the same manner as A/P and A/R accounts - this would enable you to use accounts such as Accrued Interest Payable (which is NOT Accounts Payable) as a pseudo-accounts payable account where you can input "bill-type" entries when accruing interest expense and input "bill payment-type" entries when paying the balance and thus would enable for easy switching between cash and accrual basis reports. Do the same for certain receivables and prepaid expenses and voila - problem solved! This means you would have an A/P account and a separate Accrued Interest Payable account that is essentially a second A/P account in all but name.

Come to think of it... does QBO already allow you to do this? I would have to test and figure it out. This would be a feasible workaround (just create a new "Accounts Payable" account but call it Accrued Interest Payable or whatever you need). It would designate it as an "A/P account" internally but when pulling up reports, it will display that account separately from A/P and would cause it to disappear when switching to cash basis. I will return to report if this works.

UPDATE: I have tested the above method and it does not work. QBO does allow you to create multiple A/P accounts, but in order to convert the numbers to cash basis for report purposes, it HAS to be in the format of bill / bill payment check, which wouldn't be a problem except that QBO does not allow you to create a bill under anything except the DEFAULT A/P account. So we're back to square one of no accurate cash basis reports from QBO.

[dreidrei]

I think Xero software has a relevant feature for your question. Whenever you make a manual journal entry there, a tick box is just below the narration box if you want that entry to appear in cash-basis report or not. 

[ChristopherCPA]

I’ve been using a workaround that seems to do what the client needs. I’ve created a location called “Accruals” and I add this to the line items of journal entries that I want only to show on an accrual report. When I want to run a true cash basis financial statement, I just click the “cash” radio button and then customize the report to remove transactions with the “Accruals” location, and it works!

 So I maintain the books on cash and book those adjusting entries to convert to accrual. We also use bills/invoices, but that only goes so far. Far easier to use AJEs for most accruals.

Hope this helps!