The problem is when I run a Balance Sheet Cash Basis All Dates report the INVENTORY ASSET value is not changing at all?

Hello there, s1b.

I'll share some information to help you understand the reports in QuickBooks Online. 

Inventory is treated as an expense in cash basis accounting only becoming an asset when it is sold for cash. That is why is not shown on the balance sheet cash base report.

I would suggest seeking guidance from a certified accountant regarding the process at hand. They would be better suited to offer advice and ensure that the procedure is executed in a compliant and efficient manner.

Additionally, I'll be adding this related article to help you understand how to customize reports in QuickBooks Online.

I'll be around if you need further assistance managing your report or other related concerns in QuickBooks Online. Just click on the Reply button to keep me updated.

@s1b 

Correct.  QB can only run differentiate inventory on cash vs. accrual reports if you receive all items using a Bill, Expense, or Check transaction.  When the items were originally set up, you must have entered an 'Initial quantity on hand' in the item set-up.  When you did that, it bypassed QB's ability to differentiate inventory value on cash vs. accrual reports.  On cash basis, you should show $0 inventory if you received all items using a Bill/Expense/Check.  Now, you will show your opening inventory value and an offset to Opening Balance Equity for any date you select on a cash basis balance sheet.  Fixing this is going to be a challenge if you have a lot of items that make up your opening inventory balance.  However, since you carry inventory, I assume you're on accrual basis.  If you ever need to present a cash basis balance sheet, you can make a journal entry to remove the inaccuracy.  Then, make sure to delete it.         

Thank you!  If I am following correctly, I have 2 issues I need to resolve:

• I used 'Initial quantity on hand' to bring all my inventory into QBO.    We were a Sole-Proprietor that become a Corporation.  The inventory is coming from that “ownership” transfer into the new Corporation QBO data file. What is the proper method to bring this inventory in?  Should I enter a Bill, Expense or Check?  That could bring the inventory in - then how do I “pay” for it?

• If I am using Inventory Tracking, then it is recommended that I use Accrual method in QBO.  If I switch methods in QBO,  P&L and Balance Sheet will report Inventory/COGS accurately.  We prefer to report to the IRS on Cash Basis, is there a work around?  I ran Cash and Accrual reports and compared, the only section that has a difference is the COGS section on P&L and Inventory Asset on Balance Sheet. 

Thank you!

Corina

@s1b 

"What is the proper method to bring this inventory in? Should I enter a Bill, Expense or Check? That could bring the inventory in - then how do I “pay” for it?"

You will create a $0 Bill/Expense/Check to "pay" for it.  It really makes no difference if you use a Bill, Expense, or Check.  Let's use a Bill as an example.  On the Bill, under 'Item details', enter the items you want to put into inventory and the proper quantity and cost.  Then, under 'Category details' enter the account you want to offset the inventory total and enter total as a negative amount so the bill is $0.  The offsetting account can be Opening Balance Equity (OBE).  However, you (or your CPA) are going to need to make adjustments because OBE is a temporary account and their is no single account that offsets inventory on your balance sheet.  At least OBE will raise a flag that an adjustment needs to be made.      

"We prefer to report to the IRS on Cash Basis, is there a work around?"

If you haven't discussed this with your CPA, I would suggest it.  Cash basis accounting expenses inventory at the time of purchase, not the time of sale.  It's not really your choice as to whether you use cash or accrual.  If you carry inventory, the IRS generally requires that you be on accrual basis.  There are some exceptions based on business size and whether you track inventory (you do) so, IMO, you should be on accrual basis.  If your CPA gives you their blessing to be on cash basis, great.  You/they will need to answer to the IRS in case of an audit.