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farmer_z
Level 2

Cash Basis Reports Inventory Handling

I would like to use inventory items on our farm for input purchases so that I can better manage things from an accrual point of view. However, we file taxes on cash basis and intend to stay that way. I want to run accrual reports for internal use and cash reports for tax use.

 

My problem is that when I use inventory items and run a cash basis report, the inventory still shows up as 'other asset' on the B/S and does not show up as 'COGS' on the P&L. I would expect that if you run a cash basis report, that QuickBooks should simply skip the inventory account and post straight to COGS. From what I have read, I believe that QBO can be setup this way. Is there a reason that this doesn't work in QBDT? Am I the only one that shares this frustration?

 

I'm running 2016 Pro today, but I'd upgrade in a heartbeat if they have this issue resolved.

18 Comments 18
Maybelle_S
QuickBooks Team

Cash Basis Reports Inventory Handling

Hello there, @farmer_z.

 

I'm here with some insight to provide about why the Cost of Good Sold (COGS) is not showing up in the Profit and Loss report.

 

When running a cash basis report for Profit and Loss, COGS will only show once payment is applied to the invoice. COGS will not show until you sell an inventory item. The purchase on inventory will affect the Inventory Asset account.

 

Also, please know that the cash basis reports will use the invoice/bill date. If this doesn't show on a cash basis, it will show when you run accrual basis reports.

 

The system will use your preferred accounting method for all Summary reports only. Let's check the settings to see if you've selected the correct method:

  1. Go to the Edit menu.
  2. Select Preferences.
  3. Click Reports & Graphs.
  4. In the SUMMARY REPORT BASIS, select Cash.
  5. Click OK.

Once done, you can now run your reports. Here's how:

  1. Go to the Reports menu.
  2. Click Company & Financial.
  3. Choose Profit & Loss by Class.
  4. Click Cash as your Report Basis.
  5. Select Refresh.

 

To learn more about these methods, please check out this reference: Cash vs. accrual accounting: What’s best for your small business?

 

You can also visit this article to learn more about inventory and cost of goods sold: Understand inventory assets and cost of goods sold tracking.

 

Fill me in if there's anything else you'd like to know more about running the reports in QuickBooks Desktop. I'd be glad to help you out.

farmer_z
Level 2

Cash Basis Reports Inventory Handling

According to cash accounting principles, there is no inventory as all expenses should be recorded in the period in which they are paid. So I don't understand why QuickBooks would not expense the purchases when paid. Holding the value in inventory to expense as COGS when sold, as QuickBooks does, is not consistent with cash accounting principles.

 

Did I read correctly that QBO provides an option to immediately expense inventory items?

Catherine_B
QuickBooks Team

Cash Basis Reports Inventory Handling

Hello there, farmer_z.

 

The accounts used in your items will depend on what type of account you entered when setting the items up. When setting up an item, you have the option to select an expense account in the Purchase Information section in which every time you purchase these items it'll post into that expense account. You can also reach out to an accountant if you need more help with identifying the correct accounts. 

 

QuickBooks uses default accounts to post purchases to know more on how take account to these item, you can look into this reference that was also attached by my colleague: Understand inventory assets and cost of goods sold tracking

 

The Community Team is always here 24/7 to help. Just leave a reply below and we'll hep you through it. Take care always!

farmer_z
Level 2

Cash Basis Reports Inventory Handling

If I had to boil my question down, it is this....

 

How do I setup QuickBooks to expense inventory item purchases (to their COGS account) when using cash basis reporting while posting to inventory on the same inventory item purchase (to their inventory account) when using accrual basis reporting?

 

Wouldn't that be the correct way for QuickBooks to report cash basis vs accrual basis?

RCV
QuickBooks Team
QuickBooks Team

Cash Basis Reports Inventory Handling

Thanks for coming back, farmer_z.

 

In QuickBooks Desktop, the Cash basis report only shows income if you have received cash and expenses paid by cash. While the Accrual basis report shows income regardless of whether your customers have paid your invoices, expenses, and all your bills.

 

For more details about this one, check out this article: Differentiate Cash and Accrual basis

 

Also, QuickBooks uses default accounts to post item purchases. Just follow the steps provided by Catherine_B on how to add an item under the expense account.

 

To learn more about how QuickBooks handles inventory assets, average cost, and Cost of Goods Sold (COGS), just refer to this article: Understand inventory assets and cost of goods sold tracking.

 

I've got a link here that provides you with articles about managing your inventory items: https://quickbooks.intuit.com/learn-support/en-us/inventory/07?product=QuickBooks%20Desktop.

 

Feel free to go back to this thread if you need a hand with customizing financial reports or any QuickBooks related. I'm always here to ensure your success. Keep safe and healthy. 

farmer_z
Level 2

Cash Basis Reports Inventory Handling

I'm sorry, I still don't think we're understand each other. Unless I'm mistaken, the recommendation by Catherine_B is for non-inventory items. I'm asking about inventory items. Non-inventory items always expense. I need inventory items to expense on a cash report and accrue on an accrual report. Does QuickBooks do this?

IamjuViel
QuickBooks Team

Cash Basis Reports Inventory Handling

The cost of goods sold will not show until you sell an inventory item, @farmer_z.

 

In order to qualify for a COGS, you'd want to ensure that the inventory is used up in the sale or service. If you purchase a ream of paper for a print job for a customer, is it a COGS? Yes, if you consume the entire ream. Otherwise, the paper is an Expense. 

 

On the other hand, in a cash-based sales report, COGS is only posted when the sale is paid that assumes you have paid for the inventory purchase. The purchase on inventory will affect the Inventory Asset account. Inventory  items have three accounts: 

  • expense = COGS
  • income = your sales income account
  • asset = inventory asset

You can use these articles for additional insight on how QuickBooks inventory accounting:

Lastly, I'd recommend consulting with an accountant. This way, you'd guided in accurately accounting your inventory items.

 

Keep me posted if you have other questions about managing your inventory and non-inventory items in QuickBooks. I'm just a few clicks away.

itspaulo
Level 2

Cash Basis Reports Inventory Handling

Hello! Was your issue resolved by any chance?

 

I am having somewhat similar issues to you and have spent several hours on the phone with QB with no luck....

 

https://quickbooks.intuit.com/learn-support/en-us/reports-and-accounting/help-cash-basis-reports-not...

JessT
Moderator

Cash Basis Reports Inventory Handling

Hi Paulo,

 

Thank you for joining the thread. QuickBooks is just applying the principles of the Cash and Accrual accounting methods on your reports.

 

On a cash basis, the COGS is realized when the invoice is paid, and your inventory asset account is also reduced.

On an Accrual basis, the COGS is realized whether the invoice is paid or not, and your inventory asset account is also reduced.

 

I would suggest checking the transaction details of the accounts in concern to understand the amounts better. You can do this by clicking the amounts.

 

If you have other concerns, feel free to reach back out. 

itspaulo
Level 2

Cash Basis Reports Inventory Handling

Hi Jess - thanks for the response. I’m not sure if you had a chance to look through the post I linked but what you are saying should be happening isn’t happening.

 

Here’s what you said:

On a cash basis, the COGS is realized when the invoice is paid, and your inventory asset account is also reduced.

On an Accrual basis, the COGS is realized whether the invoice is paid or not, and your inventory asset account is also reduced.

 

But when I go on cash basis reports, the inventory asset is not reduced and COGS is not realized even though it has been paid. That is exactly my issue. 

farmer_z
Level 2

Cash Basis Reports Inventory Handling

This is incorrect. Quickbooks does NOT post a paid invoice directly to COGS when running a cash report. It still keeps it as an inventory asset on the balance sheet. This is improper accounting and should be addressed by the Quickvooks team. All inventory items purchased should post straight to COGS for a cash report. I can't believe such a gross accounting error has existed for so long.

 

Or at least it still had this issue when I last tried it in Desktop 2016. I'm assuming it has not yet been corrected.

FTech
Level 3

Cash Basis Reports Inventory Handling

I've worked with QuickBooks in agriculture for a lot of years, and I understand what you are wanting. But it is not a deficiency with QuickBooks; it's a problem of wanting to "have your cake and eat it too"...

 

QuickBooks is designed as a double-entry accrual accounting system. You can easily use it for single-entry cash accounting, but it's very difficult to use for keeping full accrual records while getting out cash basis reports for income tax purposes, because those two ideas are at odds with each other.

 

If you purchase inventory (use Inventory Part Items) it is an asset. I've played with a lot of different Inventory Part Item setups (different accounts in the COGS, Income, Asset fields), and there is no simply way to "expense" inventory at the time of purchase yet still have QuickBooks consider it as inventory.

 

Yes, there are ag-specific accounting systems which can do what you want, but they are designed completely differently from QuickBooks, which is designed to accommodate a lot of different business types.

 

There are books called The QuickBooks Farm Accounting Cookbook series. They are about cash basis farm accounting with QuickBooks, but one or two of them, at least, talks about the problems of keeping track of farm inventories in QuickBooks. (Raised livestock, grain, and produce inventories, for instance, require non-standard handling.) Again, those books are about cash accounting, so they won't get you where you want to go, but they do help explain why you can't do what you are asking, with QuickBooks.

 

farmer_z
Level 2

Cash Basis Reports Inventory Handling

I've read the entire Farm Accounting Cookbook Series. My question is not ag specific. Maybe you can offer an explanation that I can understand, because it really seems like a QuickBooks issue to me.

 

It boils down to this question:

Why does QuickBooks keep inventory on cash account reports instead of instantly posting it to the appropriate COGS/Expense account set up with the item?

 

Why this is an issue:

There is no such thing as inventory when using cash accounting. Keeping inventory on cash reports means it is no longer a true cash report and is some blended cash/accrual hybrid that has no accounting purpose.

 

What I expect:

My expectation is that when running an accrual report, my assets are held in inventory and posted to COGS when consumed. When running a cash report, my assets should instantly post to COGS (or whatever account the item was setup with) upon purchase to give a true cash profit/loss.

 

This is just accounting 101 and I can't for the life of me understand why Intuit is so ignorant. If there is an underlying reason for this (such as how reports tabulate data), then so be it. But then they should add a disclaimer that it is a cash/accrual hybrid report. However, at this point, no valid explanation has been given.

Sandy2018
Level 2

Cash Basis Reports Inventory Handling

Exactly - I spent over 3 1/2 hours today on the phone and 2 1/2 hours last week for them to tell me it was not the workflow in QuickBooks and it is.  You should be able to view the inventory process correctly in either cash or accrual basis reports.  QuickBooks Online is only meant to be used in the accrual basis - if you use cash basis - you have a nightmare!!  I was informed today I need to make year end journal entries.  Funny thing is my clients books in accrual state are over 1.5 million in the negative -    Journal entries are for cash basis - Evidently the IT or whomever has written the program does not know how to process inventory whether it be cash or accrual basis.  My solution in the end - is to find a new software that can handle inventory.  Funny they don't want me to post this on this community.  Laugh at this.  I hold a 4.0 in accounting, been working with QB since 1998.  And you can have inventory on cash basis - convenience stores do it every day.

Rainflurry
Level 12

Cash Basis Reports Inventory Handling

To be able to run accurate reports on the cash basis and also the accrual basis for the same company, you have to keep two sets of books.  I have seen numerous businesses that do this.  They want the tax advantages of being on the cash basis but also want to see their financial statements on the accrual basis to see a more accurate reflection of the business performance.  Expecting QuickBooks to reclassify assets to expenses and vice versa solely when running a cash basis vs accrual basis report is unrealistic.   

pilar morales
Level 1

Cash Basis Reports Inventory Handling

Hi there, recently we change quickbooks online to quickbooks desktop enterprise, the reports in cash basis show us the total amount of the inventory (The same amount in accrual basis) which is incorrect, what might be the problem?

katherinejoyceO
QuickBooks Team

Cash Basis Reports Inventory Handling

Thanks for joining in this conversation, @pilar morales.

 

When running a Balance Sheet report in QuickBooks Online on a cash basis, the inventory shouldn't show any balance at all. There could be something wrong with how the inventory transaction was entered in QBO when moving them from QBDT. Thus, you're seeing the amount on a cash basis report in the Inventory

 

To resolve this issue, I'd recommend reviewing the details of your transactions by clicking the balance amount shown in the report. Then, change the reporting period to "All Dates," and run the report. 

 

When you run your reports, ensure that:

  • The date is set to All Dates in both products.
  • Your accounting method is set to accrual.
  • To check the balance of each of your Accounts Receivable (A/R) and Undeposited Funds accounts.

 

For more insights, check out this article to learn more about how to run the reports and compare everything

 

Get back here if you need more assistance with managing your reports in QBO. I'll be there to guide you again. 

marktaxcpa
Level 1

Cash Basis Reports Inventory Handling

Quickbooks is basically showing cash reports in the hybrid method of accounting when inventory is used.  Hybrid is basically cash basis except for inventory which is how tax returns were required to be done more than 4 years ago when a business was using inventory.   That change a few years ago per IRS rules so now I can have a client with inventory but now be 100% cash basis on the tax return.  Quickbooks does not allow someone to go to a pure cash basis report when inventory is used.  Obviously quickbooks sucks.  You have to do a manual adjustment outside of quickbooks to get to your tax return figures for a cash basis taxpayer.  

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