I need help in fixing unapplied payments expense

Hi,

Yes, it will create an additional expense if you create a bill for the same expense you created with a journal entry.   How did you create the original entries when you said you debited the expense and credit accounts payable?  Did you use a journal entry?

If you used a journal entry then yes you probably see the expense and unapplied payment when you run a cash basis profit & loss statement.

Try running the general ledger report and look at the accounts payable account.  If you see any unpaid a/p then you will probably need to use a journal entry to clear off since you did not enter these expenses as bills.

You should see the accounts payable zero out when you created the journal entry to debit the expense and credit a/p and then you debited the a/p and credited cash.  

Going forward, create bills instead of using journal entries so you can view outstanding bills in your A/P Aging Summary report.  When you pay the bill then use the bill payment feature.  

I’m thrilled to see you taking this exciting step of migrating to QuickBooks Online (QBO) from QuickBooks Desktop (QBDT), Gary. We know change can be overwhelming, but rest assured, we’re here to make the transition as seamless as possible for you.

As you move from QBDT to QBO, it's important to note that not all data gets converted, which could cause certain transactions to show unapplied payments. To understand what data doesn’t migrate, take a look at this article: Learn how features and data move from QuickBooks Desktop to QuickBooks Online.

To resolve the issue about the unapplied payments, I recommend opening the Profit and Loss report and look for the Unapplied Cash Bill Payment Expense section.

From there, select the total amount and take note of the vendor and the amount associated with each bill payment in the list.

Once done, create bills for the unapplied payments. Here's how:

1. In the left menu, click the + New button.
2. Choose Bill.
3. Fill out the details with the same vendor, amount, and date as the bill payment.
4. Select Save and close.

After that, choose Pay Bills from the + New button. If you see bills matching the bill payments in the list, select the checkboxes next to them, then Save.

When done, run your Profit and Loss report. The Unapplied Cash Bill Payment Expense account should now be removed.

Regarding your concern about double-charging the expense account, creating the bill will not charge the expense account twice. The expense was already recorded when you initially debited the expense account and credited accounts payable. Creating the bill will simply match the payment to the bill, clearing the unapplied payment without duplicating the expense.

Furthermore, we have a QuickBooks Live Expert Assisted service that assists users with their downloaded transactions, online banking challenges, and various accounting tasks. Our experts offer insights on best bookkeeping practices and using QuickBooks.

After your move to QuickBooks Online, you can find helpful resources here: Learn what to do after you move from QuickBooks Desktop to QuickBooks Online.

Should you require further assistance at any point, whether during this transition or in the future, I’m always here to help. You can connect with us by leaving a comment below.

Thank you, this contradicts the first reply that said entering a bill will charge the expense. I will do what you recommended with one transaction and I should see if it effects the profit and loss.

I did create the expense with a journal entry. We are a church so I wanted to match expenses to revenues. If we received a donation for a specified ministry I would record the corresponding expense in the same month with a journal entry. What I am doing now is creating an other current liability account instead of accounts payable for the liability.

Just one more question. Do I have to enter an account when creating the bill? I did do a search and the answer confirms what you said, it will not charge the expense account twice. If I have to enter and account do I create a dummy account or charge it to accounts payable instead of the expense.

Yes, Gary. You'll need to select an expense category when creating a bill. I'd be glad to explain further below.

It's necessary to select an expense account under the Category column, as this will be used to track your expense transactions. Conversely, when you make a payment on a bill, the accounts involved shift to your bank account and accounts payable. This difference helps ensure that there are no duplicate expenses.

On the other, to ensure which specific account to choose, I recommend seeking guidance from an accountant who can provide you with tailored advice and insights. If you don't have an accountant, I can help you find one. For more details, please visit this page: Find a QuickBooks ProAdvisor.

When recording corresponding expense transactions, we use journal entries only as a last resort. To avoid unapplied cash bill payment expenses, it's recommended to log your transactions using expense forms.

Moreover, you can close your previous fiscal year and prepare for the new one in QuickBooks: Year-end guide for QuickBooks Online.

If you need anything else or clarification about managing your expense transactions in QuickBooks, you can comment again on this thread. We're always there to assist you.

@garystepic 

"Since we pay our bills as soon as we get them, I have been avoiding using bills."

In the future, you can use an Expense (New > Expense) transaction instead of a journal entry or bill.  The Expense transaction in QBO serves the purpose of recording an expense and paying it at the same time.  QB Desktop doesn't have the Expense transaction.  Also, journal entries are a last resort type of entry because they don't show under the vendor account (unless the journal entry contains an A/P line) like they did in QB Desktop.    

"There are some cases where I would debit the expense and credit accounts payable for some vendors. When making the payment the cash account would get credited and the debit would be to the corresponding payable account. Evidently this causes problems."

I don't think that's what's causing the issue.  Journal entries aren't recognized by QB to post to "Unapplied Cash Bill Payment Expense" (UCBPE).   UCBPE should only show when you run a cash basis P&L and you have entries to A/P that use standard QBO forms (Bill Payments, Deposits, etc.) and the date on those entries precede the bill in which they should be applied/credited.  QB Desktop doesn't have UCBPE so you may have had these entries in QB Desktop, you just didn't see them because QB Desktop ignores those entries on the P&L.  IMO, this is an improvement over QB Desktop.  

A this point, you should be able to click on the UCBPE balance on your P&L and see what transactions are hitting that account.  You can then go through and change the dates on the payments/deposits/checks, etc. so they are dated the same as or later than the bills in which they apply.      

Maybe it's a different discussion but this still involves unapplied payments expense.

What do I need to do if the unapplied payments expense is caused by a prepayment?

Scenario: We prepay our vendors to get discounts. Once they bill us, we draw from that prepayment. QBO recommends we use "Accounts Payable" when we prepay vendors so we can easily apply that prepayment to the vendor bills. This creates an abnormal A/P balance at month-end but we adjust that through a journal entry:

Dr Prepaid Expense

Cr Accounts Payable

With that, our A/P balance is corrected and we recognized the prepaid expense when we close our books monthly. 

The problem arise when we run cash P&L for tax purposes. All the bills that were paid using the prepayment appear under the Unapplied Cash Bill Payment Expense. How do I fix that?

Thanks for joining this thread, jsedigo2.

When you run a Profit and Loss report in QuickBooks (using the cash method), an account called Unapplied Cash Bill Payment Expense shows.

This account will show up when:
 

• You entered bill payments without matching them to bills.
• A bill payment for a vendor is recorded before entering the bills.

Here's what to do if you see unapplied cash bill payment expense on your profile and loss report:
 

1. Open the Profit and Loss report and look for a section titled Unapplied 
2. Cash Bill Payment Expense.
3. Choose the total amount. Take note your vendor and amount for each bill payment in the list.
4. Click + Create, then Pay bills.
5. If you see bills matching the bill payments in your list, tick the checkboxes next to them, then hit Save.
6. In the event you don’t see a matching bill for one of your bill payments, use the + Create option to create it.
7. Repeat the steps for any bill payments left on the list.

When you're finished, try running your Profit and Loss report again. The Unapplied Cash Bill Payment Expense account should be removed from your report.

I've also included a detailed bookkeeping resource which may come in handy moving forward: Debit vs. credit in accounting - Guide, examples, & best practices

Please feel welcome to send a reply if there's any additional questions. Have a wonderful Thursday!

Hey Zack ,

Thank you for your swift response. I believe generally those are the two things that cause the Unapplied Cash Bill Payment Expense to show in the cash basis P&L.

However, based on my experience and upon looking into the transactions that appear under our company's Unapplied Cash Bill Payment Expense account over the last 5 years, these are the other things that show:

• Bill Date is later than the date the Vendor charged our card.
  
  For example, the vendor charged our credit card on March 15 but the bill they provided us is dated March 16. This happens so often to SaaS vendors. We cannot change the bill date to an earlier date as it would no longer match with the actual bill that we received.
  
  How do we resolve that so it would not show under Unapplied Cash Bill Payment Expense?
  
  
• Prepayment to Vendors
  
  This is the most common for our company. We prepay our vendors to get discounts, lowering our costs. As QBO instructed, we have to record the Expense Transaction as DR Accounts Payable, CR Cash/BankAccount so we can apply the prepayment to future vendor bills we will receive. 
  
  I noticed all vendor bills to which we apply the prepayments show under Unapplied Cash Bill Payment Expense. As soon as we fully exhaust the prepayment, the succeeding vendor bills no longer appear. 

   

How do I fix that to zero out or completely remove Unapplied Cash Bill Payment Expense without the need to do a journal entry? 

I also found out doing a journal entry for this would affect my accrual P&L so it is definitely not an option.

Thanks for following up with the Community, jsedigo2. I appreciate your detailed information.

To properly identify what you'll need to do to zero out or completely remove your Unapplied Cash Bill Payment Expense without the need for a journal entry, I'd recommend working with an accounting professional.

If you're in need of one, there's an awesome tool on our website called Find a ProAdvisor. All ProAdvisors listed there are QuickBooks-certified and able to provide helpful insights for driving your business's success.

I've also included a detailed resource about prepaying vendors which may come in handy moving forward: Record vendor prepayments or deposits

I'll be here to help if there's any additional questions. Have a great Friday!

@jsedigo2 

I'm not sure if this will accomplish what you want, but when you make a prepayment to your vendor, use a Check (Create > Check) transaction and assign Prepaid Expenses (Other Current Asset) to the check. That debits prepaid expense and relieves you from having to make the journal entry Dr Prepaid Expenses Cr A/P at month-end.  It also bypasses anything posting to Unapplied Cash Bill Payment Expense on your cash-basis income statement at the time of the prepayments.

Then, when you receive the bill from the vendor, instead of using a Bill to record it, use an Expense (Create > Expense) transaction. The advantage of using an Expense transaction is that you can pay it directly from the Prepaid Expenses OCA account.  I'm not sure if that's exactly what you're trying to accomplish, but if you can clarify, I'm happy to try and help.

@Rainflurry , this actually sounds like a great way to do it. 

We've closed our 2025 books. It would have been great to have known about this early last year. I'll definitely try it this year. Thank you for this!

Just wanted to clarify two things though. Since I will be using a Check transaction, it will immediately record this as an expense in the cash basis reporting, is that right? 

And one more clarification, I would have to do two line items for the expense transaction. One line item for the expense account and another line item for the prepaid expense so cash account would be $0. Is that right?

@jsedigo2 

"Just wanted to clarify two things though. Since I will be using a Check transaction, it will immediately record this as an expense in the cash basis reporting, is that right?"

Actually, no.  QBO has significant limitations in terms of being able to accurately reclassify cash vs. accrual entries with its built-in reports.  

The way you have been recording it allows QBO to reclass the prepayment from an A/P debit balance on your accrual-basis B/S to a UCBPE on your cash-basis income statement.  But, QBO is not smart enough (and there's no workaround I know of) to allow the prepayment to be booked as a Prepaid Expense on your accrual-basis BS and then have QBO reclass it automatically as an expense on your cash-basis income statement.  QBO can only do that for transactions posted to A/P.  So, you have the choice of assigning the prepayment to A/P, which provides accurate cash-basis income statement reporting but a wonky A/P balance on your accrual-basis BS, or assigning the prepayment to Prepaid Expense, which gives you accurate accrual basis BS but doesn't book the expense on cash basis at the time the prepayment is made.  Does that make sense?

If you use the method described in my previous post, it will give you an accurate accrual basis BS, but it will not show as an expense on your cash basis income statement.  I wasn't sure exactly what you are trying to accomplish, so I just threw that out there.

In a previous post, you mentioned seeing bills listed under UCBPE on your cash basis income statement.  That's normal and expected because those bills are reducing the amount of the prepayment that posted to UCBPE.     

  "And one more clarification, I would have to do two line items for the expense transaction. One line item for the expense account and another line item for the prepaid expense so cash account would be $0. Is that right?"

No.  You can select the Prepaid Expense other current asset account under the 'Payment Account' drop-down, eliminating any cash being part of the transaction. 

I hope I'm not making this more difficult for you.  

@Rainflurry thank you for explaining it clearly. 

Yeah, that does make sense.

I guess I'll have to think thoroughly and consider these before deciding which one to use.

I was not able to share my goals, thank you for pointing that out:

1. Have a cash P&L that shows prepayment as expense without the UCBPE because it houses both our prepaid COGS and prepaid OpEx
2. Have an A/P with normal balance

@jsedigo2 

Your goals are shared by many QBO users.  Unfortunately, QBO cannot automatically reclassify prepayments from anything other than A/P to an expense on your cash-basis P&L and, even then, it reclassifies those payments to UCBPE, thereby lumping prepayments of inventory and OpEx together.  This is a major limitation of QB.  Seems easy enough to have a feature that would allow a B/S account to be created that would allow a user to select what P&L account it should post to on cash basis.  Good luck!