Cash Accounting Question - End of Year

I’m glad to see you in the Community, danh123.

Thank you for being detailed about your concern. This will guide us on how to get the payments to show in your reports (2021).

Cash basis reporting only shows income when cash is received and expenses once they’re paid. The date that will show for the payment is the time you receive the transaction and not the invoice date.

Let’s create a sales receipt since this transaction type is used to receive payment at the time of the sale. Once done, open the report again to check if the entry is posted in the correct year (2021).

If you continue to get the same result, run the Verify and Rebuild Data Utilities. These built-in tools will help determine and remove common data issues. Before proceeding, create a backup of the company file to keep a record of your transactions.

Once done, let’s start running the utilities. I’m here to help make sure the process is a breeze for you.

1. Navigate to the File menu at the top to choose Utilities and Rebuild Data.
2. Click OK to create a backup of the company file.
3. Press Save to keep the copy.
4. Tap the OK button once the Rebuild is completed.
5. Then, go back to the File menu to choose Utilities and Verify Data.

If it finds an issue, choose Rebuild or OK to continue using the company file. If none of these suggestions work, I recommend performing Solutions 2-4 in the following article: Fix data damage on your QuickBooks Desktop company file.

Let me share some resources to help you in the future. These articles contain solutions on how to resolve any damaged entries such as item history or transaction out of balance. You’ll also learn about setting up reporting preferences in QuickBooks Desktop (QBDT).

• Differentiate Cash and Accrual basis
• Fix damaged transactions in QuickBooks Desktop

Click the Reply button below and post a comment if you have additional questions on how to handle your cash transactions and reporting. I’ll be right here to help and make sure this is taken care of for you. Enjoy your weekend.

I'll share the best way about handling rent payment from your customer, danh123.

Sales receipts and invoices are handled differently in QuickBooks. If your consumer agrees to pay you later, you can use an invoice. Then, when your consumer pays you on the spot, create a sales receipt. If your customer pays you in advance, the best to handle this is to delete the invoice and create a sales receipt to record the payment.

Here's how:

1. Go to the Customers menu, then select Create Sales Receipts/Enter Sales Receipt.
2. Choose a customer or job from the Customers: Job dropdown.
3. Fill in all the necessary information.
4. Once done, hit Save & Close.

You can open and delete the invoice for customers who pay in advance. Repeat the same process for payments made in 2021. You produce a sales receipt with the actual date of payments. Then, remove the invoices for the year 2022. This way, those transactions will reflect in 2021.

Check out the following resource below for more insights:

• Invoices vs. receipts: Understanding the difference.

• Create sales receipts.

If customers want credit or refund for the products and services they paid for, you may learn more about the process in this article: Give your customer a credit or refund in QuickBooks Desktop for Windows.

You can reply again if you require further help with handling payments. I'll be here to help you.

@danh123  RE: The problem I just discovered is that the payment gets recorded on the invoice date and not the received or deposited date, even though I am using cash accounting.

This is normal.QuickBooks is following GAAP rules for recognizing income on a modified cash basis.

- The P&L - even on a cash basis - isn't a cash flow report. It won't show you your total cash receipts for a period.

- Cash receipts are not the same as income in any case, (cash or accrual) because they might be for things that are not income, like sales tax on sales. Or, they might be things like unearned retainers, deposits to secure a future sale, or loan repayments, none of which are not income.

- Your cash-basis P&L will show income only after you received payment for a sale and you have earned the sale. This is key. In your case, you received the money and then later you earned it.

Here's the (GAAP/IRS) logic:

- If you receive a payment and don't apply it to a sale, then there is no income. Among other reasons, from an accounting POV there is no way to know what the payment is for unless it is applied to something.

- If you later complete a sale and record it, and you apply the payment to it, then you have a cash basis income event because by recording the sale you indicate that, on that date and not earlier, you earned the sale.

- QuickBooks uses the transaction dates you enter to determine the order of events, regardless of when you actually recorded the transactions.

- Based on the dates, in the case where the invoice follows the payment, there is no way to really know what the payment is for until the invoice date.

While in your case you have actually pre-recorded the sale, and so the payment is applied, this logic is still reasonable because until the actual date of the sale it is fair to assume the sale is not final - is not earned - and may be changed or may not actually happen (and that is in fact how some companies regularly operate.)

This seems to be the case for you as well. While your tenants may not be able to leave within days and so avoid the next month's rent, in theory you are earning your income each month based on the calendar.  Consider if a tenant prepaid four months rent in December and then a month later gave notice and then moved out at the end of the third month. You would then owe the tenant a month's rent because you haven't earned it.  This is, basically, why the GAAP & IRS logic allows you to defer reporting cash receipts until you earn them, and why the sale dates are used to recognize prepaid funds.

@BigRedConsulting:

"This is, basically, why the GAAP & IRS logic allows you to defer reporting cash receipts until you earn them, and why the sale dates are used to recognize prepaid funds."

While that may be true for GAAP, the IRS requires prepaid rent to be recorded as income when received regardless of when it is earned:

Per the IRS:

Advance rent is any amount you receive before the period that it covers. Include advance rent in your rental income in the year you receive it regardless of the period covered or the method of accounting you use.

Thank you so much for this info it will help me out but can you explain me in detail about  sales receipt ? i was curious to know about it. Myloweslife

Hello there, @Jeramy Jacobs.

In QuickBooks Desktop (QBDT), we can use a sales receipt if you receive full payment at the time of a sale. Sales receipts include payment by cash, check, or credit card. You can also use a sales receipt to summarize your daily sales in one transaction.

You can check this link to know more about sales receipts: Create sales receipts.

I've added this helpful article about How to record a customer payment in QuickBooks Online: Record invoice payments.

That's it! If you have other concerns, please don't hesitate to post again. We are always happy to help!

Thanks for the reply. What I ended up doing was just changing the date for the January 1 invoices for customers who paid early to December 31, 2021. Now their rent is applied to my 2021 numbers which is when the money was deposited to my bank account. I will only need to do this for a few invoices at the end of each year. Other than that, I am happy with the way my system is set up.

Thank you for the detailed reply. It makes sense.

Am I wrong in thinking that the IRS wants me to report rental income when it is received and not when it is earned? It was my understanding that if I receive income in 2021 I should report it on that years tax return.

I ended up changing the invoice dates from January 1, 2022 to December 31, 2021 for the tenants who paid early. This shows the income received in 2021 and works for me with tax filing. I will only have to change a few invoice dates at the end of each year.

This is what I thought. I ended up just changing the invoice dates from January 1, 2022 to December 31, 2021 for the tenants that paid early. Now my income shows up in 2021 which is what I wanted. I will just change a few invoices at the end of each year.

Hello.  I am trying to run a report for end of year total expenses, with amounts subtotaled by category.  Can't seem to find a way to do that.  Can you help?

Hi there, Neener6154.

As of now, the option to run a report with sub-total is unavailable in QuickBooks. However, you can export a report and add the sub-total from there. Let me guide you with these steps:

1. From the Reports menu, select Custom Reports.
2. Select Transaction Detail.
3. In the Modify Report page, go over the Display and Filters tab to show the data needed.
4. Click OK when done.
5. Click the Excel button and pick Create New Worksheet.
6. In the Send Report to Excel page, click Export.

I’m also adding a link that provides tips on how to tailor the information on a report: Customize reports in QuickBooks Desktop.

Keep me posted whenever anything arises. I've got you covered. Stay safe!

Same problem.  I get paid in advance, a retainer, and then do the work.  I use invoices as well.  Cash basis accounting for tax reporting purposes means just that.  All these work arounds are silly and time consuming.  My revenue should reflect my deposits, less any refunds, etc.  Shouldn't be hard for Quickbooks to do.  However, Quickbooks is keying off the invoice date for cash reporting and that is simply wrong.

@RH28 

"However, Quickbooks is keying off the invoice date for cash reporting and that is simply wrong."

Actually, that's incorrect.  QB uses the payment received date for cash reporting, not the invoice date.  If you're receiving a retainer, set up a retainer service item and map that to the appropriate revenue account and use that on the client invoice for the retainer.  Then, receive payment on that invoice.  At that point, you will have accurate cash basis revenue as of the payment received date.  When you invoice your client for work performed, add the retainer service item as a negative amount to reflect the retainer applied to the invoice.  At that point, you still have accurate cash basis revenue because the negative retainer amount offsets the positive service item amount.  If you bill beyond the retainer amount received, create an invoice for the service item and apply the payment when received.  At all points throughout that process, cash basis revenue will be correct.   

He is correct. If you get paid 12/30/24 for an invoice dated 1/1/2025, the income will show up in your 2025 reporting while using cash accounting. It should not be reported this way but that is how QB does it.

I have to change all my invoice dates to 12/31/24 for payments made in 2024 for 1/1/25 invoices for the income to show up in my 2024 totals.

@danh123 @RH28 

My apologies.  You're correct.  I mistakenly thought we were discussing QB Online, not Desktop.  This is one area that QB Online is better than Desktop.