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Intuit

Resolve A/R or A/P balances on a cash basis Balance Sheet

Learn how to fix an Accounts Receivable or Accounts Payable balance on a cash basis Balance Sheet.

An issue with the balance is typically caused by one of two things: an accounts payable or accounts receivable transaction has affected the Balance Sheet account, or there's an unapplied payment.

An Accounts Receivable or Accounts Payable balance on a cash basis Balance Sheet is often caused by an accounts payable (A/P) or accounts receivable (A/R) transaction.

As soon as the entry is saved, the Accounts Receivable or Accounts Payable account shows a positive balance until you receive payment or pay the bill.

Common examples are:

  • GST: Normally reported under BAS Liabilities Payable, a liability account.
  • Security Deposits: Often entered on invoices using a product/service item that is reported under a security deposit liability account.
  • Retainers: Often entered using a product/service item that is reported under a liability account.
  • Asset Purchase: A bill entered to purchase an asset.

In these cases, the balance can be left where it is. Such balances have no effect on the Profit and Loss report, which is the main focus of cash basis, not having a zero balance in Accounts Receivable or Accounts Payable. Your accountant can reverse the Accounts Payable and Accounts Receivable balances using the proper accounts when doing your taxes.

It's not a good idea to try to correct these accounts with a journal entry, especially for sales tax, as every customer account with a GST balance would have to have an individual line item entry made to it.

However, if you decide to create a journal entry, you should enter a date of the end of the time period, and set it to reverse on the following day. For invoices, the journal entry debits the account affected by the invoice and credits Accounts Receivable, while, for bill entries, it credits the asset account and debits Accounts Payable.

Warning: It is important to consult an accountant before trying to correct these accounts with a journal entry.

The following sections outline the steps to create and then reverse the journal entry.

Create a journal entry for Accounts Receivable

To create a journal entry for an Accounts Receivable balance:

  1. Select the + New button.
  2. Under Other, select Journal Entry.
  3. Enter the Journal Date. The Journal Date is the date of the end of the time period.
  4. On the first line, select the account affected by the invoice from the drop-down list in the Account column.
  5. In the Debit column, enter the amount.
  6. Enter the reason for this journal entry in the Memo field.
  7. In the second line, select Accounts Receivable from the Accounts drop-down list. The amount should be automatically entered in the Credits column.Note: If you are splitting this over several customer accounts, change the amount to reflect a single customer's sales tax.
  8. Select the customer from the drop-down list in the Name field.
  9. Select Save and Close.

The journal entry is created.

Create a journal entry for Accounts Payable

To create a journal entry for an Accounts Payable balance:

(Note that for offsetting A/P or supplier balances, the "Credit" account type  is usually Expense or Liability. But it's really important than an accountant be consulted. Same with A/R adjustment)

  1. Select the + New button.
  2. Under Other, select Journal Entry.
  3. Enter the Journal Date.The Journal Date is the date of the end of the time period.
  4. On the first line, select the expense or liability account affected by the bill from the drop-down list in the Account column.
  5. Enter the amount in the Credits column.
  6. Enter the reason for this journal entry in the Memo field
  7. On the second line, select Accounts Payable from the Accounts drop-down list. The amount should be automatically entered in the Debit column.
  8. Select the Supplier from the drop-down list in the Name column.
  9. Select Save and Close.

The journal entry is created.

Set the journal entry to reverse

Once the Accounts Receivable or Accounts Payable journal entry is created, you must set it to reverse:

  1. Select Search icon on the toolbar.
  2. Locate the journal entry you created and select it to open it.
  3. Select Reverse.
  4. Change the Journal Date to one day after the original journal entry's Journal Date.
  5. Select Save and Close.

The journal entry you created will be reversed as you specified.

Unapplied payments

The second most common cause of a balance in Accounts Receivable or Accounts Payable is unapplied payments.

Bill payments that are not applied to bills, or Receive Payment entries that are not applied to invoices affect Accounts Payable and Accounts Receivable negatively. You can correct this situation by opening the payments from the Customer or Supplier registers and applying them.

Occasionally unapplied payments are caused when you do not enter the corresponding invoices or bills. To correct this situation, you must enter the missing invoices or bills before you can apply the payments to them.

The following sections provide information about finding and addressing unapplied payments.

Find unapplied payments

To find unapplied payments, review the Customer Balance Detail or Supplier Balance Detail report.

  1. From the left menu, select Reports.
  2. Locate and select either the Customer Balance Detail or Supplier Balance Detail report.
  3. Review the report to identify any unapplied payments.

Once you have identified unapplied payments, you can apply them in Accounts Receivable or Accounts Payable.

Apply payments in Accounts Receivable

  1. From the left menu, select Sales.
  2. On the All Sales tab, select Filter.
  3. Select Money received from the Type drop-down list.
  4. Select a Customer name from the list.
  5. Select Apply.
  6. Locate and select the unapplied payment to open the Receive Payment window.
  7. In the Outstanding Transactions section, select the invoice or invoices the payment should be applied to.
  8. Select Save and Close.

The payment is properly applied.

Apply payment in Accounts Payable

  1. From the left menu, select Expenses.
  2. On the Expense Transactions page, select Filter.
  3. Select Recently Paid from the Type drop-down list.
  4. Select Apply.
  5. Select the unapplied bill payment from the list to open the Bill Payment window.
  6. From the Add to Bill Payment panel, select Add for the bills to apply the payment to.
  7. Select Save and Close.

The payment is properly applied to the bill.

Review Transaction Reports

The Transaction Report can show you the customer or supplier balance that creates a total in Accounts Receivable or Accounts Payable.

  1. Go to Reports.
  2. Locate and open the Balance Sheet report.
  3. Select the amount listed for the Accounts Payable or Accounts Receivable account to open Transaction Report for that account.
  4. Select Customise.
  5. In the Customise report panel, select the Rows/Columns item to open the section.
  6. From the Group by drop-down list, select Customer for Accounts Receivable or Supplier for Accounts Payable.
  7. Select Run report.

You can use the information in the report to identify the cause of the balance and decide what action is necessary.

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