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Level 2

Clarification on cash basis P&L needed

Let me please set the table. Lets assume that I have to pay $1,000 rent at the beginning of each month. Let say I can defer my rent for a few month. Each month I'll book the following transactions:

Jan 1, credit payable $1,000 debit rent $1,000

Feb 1, credit payable $1,000 debit rent $1,000

On March 1 I have cash and I can pay three months rent, so I write a check for $3,000 and book the following transaction in the checking account

Rent 1000

payable 2000

When I run my P&L on a cash basis, it only shows the rent for March $1,000. What am I doing wrong?

 

Solved
Best answer August 16, 2020

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Highlighted
Community Champion

Clarification on cash basis P&L needed

Yes, and Write Checks works great for current expenses or paying down liabilities. But the scenario you posed calls for Vendors>Enter Bills, Pay Bills. A Bill posted 1/1 and paid 3/1 is accrual expense on 1/1 and cash expense on 3/1.

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19 Comments
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Community Champion

Clarification on cash basis P&L needed

Do you have a mismatch of names between the A/P credit znd debit? In a journal dntry as you would have been cautioned with a popup. A name is required for A/P entr^^^

But what I wonder is why you went through the hassle of debit/credit when a Bill for rent each month would just sit until paid?  Then when you paid in March you would have cash badis expense in March of $3000. In cash basis you cannot book expenses in Jan and Feb that were not paid then. That is accrual accounting and nothing special has to happen other than a Bill for the expense to post then even if unpaid

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Level 2

Clarification on cash basis P&L needed

Thanks John. The above situation is an example. This also happens with receivables. My taxes are done on a cash basis, my P&L and BS has to be on accrual basis.

Highlighted
Community Champion

Clarification on cash basis P&L needed

QB is by default accrual basis accounting with the option of viewing reports as either accrual or cash with no fancy data entry required.  Pere your example, your rent expense for cash basis only happens when you stroke a check but if you run P&L on accrual your rent bill shows expensed when billed (same with customers and invoices, income to you )

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Level 11

Clarification on cash basis P&L needed


@qtl wrote:

Let me please set the table. Lets assume that I have to pay $1,000 rent at the beginning of each month. Let say I can defer my rent for a few month. Each month I'll book the following transactions:

Jan 1, credit payable $1,000 debit rent $1,000

Feb 1, credit payable $1,000 debit rent $1,000

On March 1 I have cash and I can pay three months rent, so I write a check for $3,000 and book the following transaction in the checking account

Rent 1000

payable 2000

When I run my P&L on a cash basis, it only shows the rent for March $1,000. What am I doing wrong?

 


@qtl How are you recording each month? You mentioned credit payable as if it seems you're writing a Journal type. If you're entering Vendor Bill type each month (Jan, Feb & March) and payment on March for $3,000, P&L on a Cash basis should show a $3,000 expense in March. This is on QuickBooks Desktop.

Highlighted
Level 2

Clarification on cash basis P&L needed

If you click on "Write Checks" on the home page, you'll see an image of a check on the top and on the bottom you can select the accounts that are impacted by this check.

Highlighted
Community Champion

Clarification on cash basis P&L needed

Yes, and Write Checks works great for current expenses or paying down liabilities. But the scenario you posed calls for Vendors>Enter Bills, Pay Bills. A Bill posted 1/1 and paid 3/1 is accrual expense on 1/1 and cash expense on 3/1.

View solution in original post

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Level 2

Clarification on cash basis P&L needed

Thanks @john-pero 

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Level 2

Clarification on cash basis P&L needed

Now I am having an issues with prepaid expenses. Lets say that I pay 12K for one year worth of insurance on July first 2019. On a cash basis my P&L should reflect 12K in insurance expense. On accrual basis my P&L should show 6K in insurance expense and other assets prepaid expenses 6K. However both cash & accrual P&L show 6K. I followed the procedure on the following link:

https://quickbooks.intuit.com/learn-support/en-us/journal-entries/record-and-allocate-prepaid-expens... 

 

Any advice? TIA

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QuickBooks Team

Clarification on cash basis P&L needed

Good day, qtl.

 

The insurance payments are made via journal entries, as stated in the article. This means the payments are directly reflected in the P&L no matter what reporting method you'll use. The Accrual and Cash basis reporting methods will matter if you use bills.

 

You'll want to seek more guidance from your accountant, especially when dealing with journal entries.

 

Please post again if you need anything else. Wishing you all the best!

Highlighted
Level 2

Clarification on cash basis P&L needed

Thanks Alex, I read your response several times and I don't think you understood my question. My issue is not accounting (as I am one). My issue reaching my objective thru QB. Again I need to have accurate cash & accrual financials. Can you detail If I can reach my objective for prepaid expenses (in this case insurance expense) using QB?

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QuickBooks Team

Clarification on cash basis P&L needed

Allow me to jump in on this thread, @qtl.

 

As my colleague mentioned, using journal entries when receiving the payments will not affect the report basis of the P&L report. You'll want to create bills and then pay them to view the different amounts on the report.

 

Her's how:

  1. From the Vendors menu, select Enter Bills.
  2. Select the name of the vendor.
  3. Enter the correct date.
  4. Choose the expense account or the item.
  5. Provide the exact amount.
  6. Click on Save and close.

 

Once you're done, you can now create payments via the Pay Bills window. I'll guide you how:

  1. Go to the Vendors menu and then select Pay Bills.
  2. If you use more than 1 Accounts Payable account, select the appropriate one from the A/P Account drop-down menu.
  3. Select the bills you want to pay on the table.
  4. Choose the payment date and method
  5. Then, click on Pay Selected Bills.
  6. The Payment Summary window appears. Select Done if you're finished paying bills or select Pay More Bills to return to the Pay Bills window.

 

I've also included an article that'll help you check the complete list of workflows and other vendor-related transactions:  Accounts Payable workflows in QuickBooks Desktop.

 

Don't hesitate to click the Reply button if you have other QuickBooks concerns. We're always here to help. Take care always.

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Community Champion

Clarification on cash basis P&L needed

As @CharleneMae_F Detailed the actions I will not repeat them but to emphasize that in quickbooks, journal entries BYPASS the differences between cash and accrual. In addition, an expense or income entered in a hournal entry will not be displayed in a transaction by vendor or customer.

 

That is why you must use bills and bill pay to properly record the expenses you wish to show as accrual on the date of each bill and cash paid on date of payment 

Highlighted
Level 2

Clarification on cash basis P&L needed

Thank you @CharleneMae_F . Let me make sure that I have communicated what I want to achieve.

 

1. I want my P&L and Balance to be accurate on "Cash Basis" and "Accrual Basis"

2. I am paying my insurance company 12K on 7/1/19. This is insurance for one year.

3. on 12/31/19 my "Cash Basis" P&L should show 12K in Insurance Expense.

4. on 12/31/19 my "Accrual Basis" P&L should show 6K in Insurance Expense and my balance sheet should show 6K in prepaid.

I followed your instruction to the best of my understanding, it achieved item 3 but not item 4. Would you kindly create a QB file with necessary transactions that would achieve item 3 & 4 and upload it. If QB files don't contain registration info, I can upload the test file that I have created for your review.

Thanks again for your kind reply.

 

Highlighted
Level 2

Clarification on cash basis P&L needed

@john-pero, Thanks for taking time to reply to my question. I think I am following the use bill and bill pay properly as outline on this board by you and others. Yet I am not achieving my objective. So let me ask a direct question:

 

Is it possible in one QB file achieve what I outlined in my response to @CharleneMae_F ?

Highlighted
QuickBooks Team

Clarification on cash basis P&L needed

Allow me to join the thread, @qtl.

 

For now, make sure that the payments are dated correctly so when running your Profit and Loss report, it'll display the correct amounts from both the accrual and cash basis. Some payments may be dated incorrectly reason why this happens.

 

To locate the payment transactions:

 

  1. Select Bill Payments from the Transactions column under the Vendor Information window.a24 1.PNG
  2. Review each payment from there.a24 2.PNG

If there are incorrect records, update it from there.

 

On the other hand, check out the topics from this article to learn more about the cash and accrual accounting methods in your reports.

 

Also, feel free to read the topics from this article for additional guides about running and customizing reports in QuickBooks Desktop.

 

Post again if you have any other questions. I'm a few clicks away to help. Have a good day!

Highlighted
Level 2

Clarification on cash basis P&L needed

@Angelyn_TI use desktop version. What did your response add to this conversation? Did you read my response to @CharleneMae_F ?

Highlighted
QuickBooks Team

Clarification on cash basis P&L needed

Hi there, @qtl.

 

To make sure that the payments are dated correctly in QuickBooks Desktop, you can do it by running Expenses by Vendor detail report.

 

Here's how:

  1. Open your QuickBooks Desktop, then go to Reports.
  2. Select Company and Financial, then choose Expenses by Vendor detail.
  3. You can choose from Accrual or Cash in running the report.
  4. From there you can double click the transaction on the report and edit the date.

 

Here's an article for additional information about cash and accrual: Differentiate Cash and Accrual basis.

 

Let me know if there's anything I can help you further. Have a good day.

Highlighted
Level 2

Clarification on cash basis P&L needed

@Joseph_A

1. how is you answer helping me? I don't have problem with transaction date.

2. I am an accountant, I know the difference between cash basis accounting and accrual basis accounting?

3. Would you please state what is the  problem that I am trying to solve.

Highlighted
Community Champion

Clarification on cash basis P&L needed


@qtl wrote:

@john-pero, Thanks for taking time to reply to my question. I think I am following the use bill and bill pay properly as outline on this board by you and others. Yet I am not achieving my objective. So let me ask a direct question:

 

Is it possible in one QB file achieve what I outlined in my response to @CharleneMae_F ?


The issue, as i see it, is despite spreading the bills out monthly, and accrual expense being correct at 6k, you only have 6k paid bills in cash basis at year end. Because of this, you have 6k as prepaid unapplied payments and without corresponding paid bills you will only have 6k expense both cash and accrual, exactly what you see.

 

If the target is to split between years and have 12k cash expense one year and 6k accrual each year it may take more work to accomplish. And time to figure this out.

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