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Pico
Level 1

current assets improvement expense

Hi. I flip houses and as advised I create current asset account for each property I purchase ( named by address of this property  ) and post all expenses related to this property under this account. This doesn't increase my expenses but it increase value of this asset and when I sell it this value turns to COGS . This year I run into some problems I have net 90 terms with some of the contractors who made improvements to some of my properties however I didn't pay them  in 2019 but will pay in 2020. My accountant tells me  I can't record these improvements  since I'm on cash basis, but to record expense which hasn't been paid I have to be on accrual base. Well first we do not record it as an expense but it goes to current asset account . I was going to create a bill and assign it to current asset account.  Per my understanding it should increase asset value and also create liabilities to pay outstanding balance. So the question is how to record this improvement to increase current asset value before contractor bill is paid. 

1 Comment
Rustler
Level 15

current assets improvement expense

 I was going to create a bill and assign it to current asset account.  Per my understanding it should increase asset value and also create liabilities to pay outstanding balance. So the question is how to record this improvement to increase current asset value before contractor bill is paid. 

 

That is correct, when you enter the bill and use the WIP asset account, that account balance will increase (accrual) and will show as an increase in cash basis when you pay the bill.

 

the above has nothing to do with income tax, since those are balance sheet accounts, and as you stated the total cost of the flip will only be an expense (COGS) when you sell it.

 

QB is accrual based accounting, it only reports on cash basis.  Cash basis generally is only used at tax time, and in QB it is really a modified cash basis report.  True cash basis would mean no liability at all, and no receivables either

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