Question on what year a payable and receivable will show

JaxFlorida · ‎January 04, 2020

On a Cash accounting basis, I have the following question / scenario.

I receive a check on Jan 1 2020 from ABC customer. The invoice was created and sent Dec 31 2019. The check that was received was dated Dec 31 2019. The check was deposited Jan 2, 2020. In which year would the P/L be affected by this transaction?

Similar:

I pay CBA vendor on Dec 31 2019 for a invoice that was dated Dec 31 2019. I pay buy a check that was cut on Dec 31 2019. The check gets cashed and cleared on Jan 1 2020. When it is reconciled, in which year would this transaction affect the P/L?

Rustler · ‎January 04, 2020

You received the check in Jan, that is the date you were paid. The date it was written makes no difference, and the date it was deposited also makes no difference, the date you received it counts.

In cash accounting, the Jan 2020 check will show as income for this year

Again the date of the payment is important, you enter that payment in QB as of the date you make it, so in this case it is 12/31 and the bill is paid. A paid bill shows in cash basis for the year of the payment, so that payment, the expense, will affect the 2019 P&L

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Rustler · ‎January 04, 2020

You received the check in Jan, that is the date you were paid. The date it was written makes no difference, and the date it was deposited also makes no difference, the date you received it counts.

In cash accounting, the Jan 2020 check will show as income for this year

Again the date of the payment is important, you enter that payment in QB as of the date you make it, so in this case it is 12/31 and the bill is paid. A paid bill shows in cash basis for the year of the payment, so that payment, the expense, will affect the 2019 P&L

JaxFlorida · ‎January 04, 2020

Wonderful. Thank you very much for the clear and concise answer. That is exactly what I wanted to know.
Thanks again.

john-pero · ‎January 04, 2020

1. Depends on when you record the received payment in QB. The IRS says that the USPS is everyone's "agent" and that if postmarked on 12/31 it is as good as delivered (lol). If the check was dated 12/31 you could post the received payment on 12/31or on1/2 when in your hands. Where the difference can hurt is not just that you are posting payment in a different year than when your customer paid you but that if you receive a 1099 from this customer it might not match your own books. Having more than enough income to spread around and exceed all the 1099s issued to you will give you some unofficial wiggle room.

2. As long as your 12/31 check to vendor is postmarked by 12/31 it is last year's expense on cash basis regardless of when the vendor cashes it.

3. Although you did not pose a third scenario this overlaps. Say you or vendor receive a payment on 12/31 but cannot go to bank until 1/2? It is 2019 business and gets posted as a payment in 2019. Undeposited Funds acts in this way as same as a bank account (current asset) and even though not yet deposited it is fully in your hands

JaxFlorida · ‎January 04, 2020

John, thank you for that additional advice. That definitely makes sense. Good to know.

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Question on what year a payable and receivable will show