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n1njah
Level 3

Cash Basis Possible For Small Retail Businesses With Inventory?

Hi all, question - Do you have to use accrual basis for your business if you're just purchasing and reselling merchandise for inventory? It seems possible to use cash basis but what if you purchase inventory on account and sell those items soon after on a cash basis? Can you still record the bill received and book inventory?

 

Thanks

 

 

2 Comments 2
DivinaMercy_N
Moderator

Cash Basis Possible For Small Retail Businesses With Inventory?

Hey there, @n1njah

 

Let me go over and discuss further details about your concern.

 

In QuickBooks Desktop (QBDT), the Accrual basis is used for transactions you entered at the time you process them and when you actually pay or receive cash. On the other hand, if you consider income or expenses to occur at the time you get a payment or pay a bill, you must utilize the Cash basis as your bookkeeping method. You'll learn more about this by visiting this article: Differentiate Cash and Accrual basis.

 

Then, to ensure you use the correct accounting method, I recommend reaching out to your accountant. This way, they can advise you on what method suits your business and assist you in setting up your account to manage your inventory seamlessly. 

 

For your other question, yes, you can still record the bill for tracking purposes to monitor your inventory. To guide you with the process, feel free to open this link: Enter bills in QuickBooks Desktop.

 

Just in case you need to review the average cost of your items, you can run the Valuation Summary report. Here's how:

 

  1. In your QBDT account, click the Reports tab.
  2. Next, select the Inventory section.
  3. Then, choose Inventory Valuation Summary and then set the dates to All.
  4. From there, double-click the item in question.

 

I'm always ready to lend a hand if you have any other concerns about managing your inventory. Don't hesitate to post a reply below. Have a great day ahead.

Rainflurry
Level 12

Cash Basis Possible For Small Retail Businesses With Inventory?

@n1njah 

 

This is the best article I have come across that discusses this issue.  It used to be (pre-2018) that the answer was you need to use the accrual method if inventories were necessary to clearly reflect income.  Now, with the TCJA, the waters are a bit murkier.  

 

https://notyourdadscpa.com/can-i-deduct-inventory-when-i-purchase-it/

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