Income Invoiced Fully for year and recieved full year in advance. How to make it on monthly accrual.

@Navneet Singhal ,

1 When I run P&L on an accrual basis, it shows me the correct value of income in relevant months, but when I run the same p&l on a cash basis, then it doesn't change anything (I mean it should show the income in the month of receipt rather than accrual month).

A:  It appears that the difference between cash and accrual for revenue is Accounts receivable... and I would think that you don't have any Accounts receivable because all subscriptions are received 12 months in advance (perhaps someone at QB/Intuit who knows the exact calculation behind the Cash vs Accrual revenue will chime in to verify this).

2 Is my method correct ?

A:  Your explanation of deferred revenue accounting sounds correct.

3 Can I do one JE per month (rather than doing JE for every single invoice with different customer's) ?

A:  You could, but I think that may actually be more time consuming to maintain, especially if subscriptions start and stop at different times of the year.

Hi Kim

Thanks for your time and response.

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@KimMcCPA wrote:

A:  It appears that the difference between cash and accrual for revenue is Accounts receivable... and I would think that you don't have any Accounts receivable because all subscriptions are received 12 months in advance (perhaps someone at QB/Intuit who knows the exact calculation behind the Cash vs Accrual revenue will chime in to verify this).

 

I think that Account recievable is not the difference between cash basis or accrual basis of accounting. Reason is Even my sales reciepts where there is no A/R involved, I am deferring its income in future but cash is already recieved in books. So If p&l report on cash basis is asked for then it should pick customer and receipts data (not accrual income). While In accrual basis, it should pick income accrual data. I do have A/R for 15 days but it doesnt matter. QB guys or someone experienced with similar situation is needed to guide.

 

Thanks again for your time.

Regards,

Navneet

Hi,

In my view, the Sales report shows the month of Invoice / Sales receipt as sale month even if the account credited is not Income account (I choose current liability account as product/ service's income account).

Income report (Profit and loss) shows the month when Income is actually recorded in the income account.

But Still unable to understand the Cash and accrual accounting difference in QBO. Any guidance or clarity on this please.

Regards,

Navneet

Hi there, @Navneet Singhal. Let me share with you some additional information about your sales or income report in QuickBooks Online (QBO).

The Sales report in QBO contains the sales details associated with all your customers. While the Profit and Loss report displays your business's income and expenses. You can filter your reports to customize and get the information you need.

On the other hand, selecting a liability account from your inventory items Income account drop-down is not available. The system only allows you to pick an Income account type from there. I'm adding these screenshots as your visual reference.

If you used non-inventory items, the transactions still shows up on your sales report even if you're using a liability account under Income account.

With regards to your report's basis, accrual reporting is an accounting method that tracks the time when you enter a transaction and the time when you pay or receive cash may be two separate events. It shows your income and expenses are paid or not.

While cash basis is a bookkeeping method in which you regard income or expenses as occurring at the time you receive a payment or pay a bill. The cash basis report only shows income if you have received cash and expenses if you have paid cash.

You can check out this link to learn more about these methods: Cash vs. accrual accounting: What’s best for your small business?.

If you have any other questions about your reports, let me know by adding a comment below. I'm more than happy to help. Keep safe!

Hi Angelyn,

I think you are wrong on this one

@Angelyn_T wrote:

On the other hand, selecting a liability account the products/services Income account drop-down is not available. The system only allows you to pick an Income account type from there. I'm adding these screenshots as your visual reference.

 

b'cos i have already set that up and using it perfectly. First created a Deffered income account as current liability then edit product income account to deffered Income account. Its that simple.

And I dont know why u think it's not doable in QBO or it is not good to do so. Have a look at below 2 screenshots for your knowledge please.

 

 

 

 

Now for your Cash and Accrual answer- let me give u an example question and you try to answer that to me thru QB screenshots. Question - Do this in QB pls. On Oct 7 2021, create invoice of $1200 and recieve its money on 8th Oct 2021 full amount. Create a bill as well of  $6000 on 25th Oct 2021 and pay it on 1st Nov 2021. Now note down that The invoice you raised was for 12 months and this income will accrue in next 12 months from the date of Invoice. Same thing is for the Bill you paid, that was also an advance for next 12 months. Now once you are done with these transactions then please run your profit and loss report, there you will see two options - Cash or accrual. Run both one by one and see results and then share your screenshots pls. That will help you understand the problem in QBO perfectly or May be you could help me understand the system perfectly.

 

I am also going to see the links you shared about these methods: Cash vs. accrual accounting: What’s best for your small business?.

 

Thanks for your reply and time. Really Appreciate that buddy.

 

Regards,

Navneet

Thanks for getting back here, Navneet.

On behalf of my colleague Angelyn_T, let me share the screenshots.

You are correct about the deferred income account and I've created that as Other Current Liability in the Chart of Accounts. Then, assigned it to an item. Here's a sample screenshot for reference. 

I use the item on the invoices and bills you mentioned above. Here are the sample screenshots:

After recording the transactions, here are the sample screenshots for the Profit and Loss report for Cash vs. Accrual:

In case you need help with other task in QuickBooks Online, you can visit our general help topics page. Just type your concern in the search field and this page will route you to the related help articles, Community discussions, video tutorials, and more.

Please let us know if you have any additional questions or concerns. We're always around to help you out. Take care and stay safe!

One mistake you did, let's fix it first.

The Bill is an expense for us and if we prepaid it then it means deferred expense which is an asset for us. So for the bill, you need to choose a deferred Expense account (other Current assets, prepaid expense ).

next thing is - You did a sale in Oct and collected cash as well. But still no entry in p&l on a cash basis. that is my point. why p&l is empty on a cash basis? I need to understand this. I understand that on an accrual basis the income was deferred and won't reflect until we move income from deferred to an income account. But what stops income account on a cash basis?

the same thing for Bill paid in cash in Oct but still no entry in p&l why ? (first fix ur error) and then do it.

Regards,

Navneet

@Navneet Singhal 

Why are you concerned about your P&L on the cash basis?  You're not a cash basis taxpayer if you're deferring income.

Your P&L is unable to differentiate between cash and accrual basis because you're using journal entries to record income, not invoices.  Using journal entries bypasses QBs ability to differentiate cash vs. accrual accounting methods.  Further, you're using invoices to record a liability, not a sale, then using a journal entry to move that liability to income.  That works, but just set up your books to correspond to being an accrual basis taxpayer and forget about how QB works on a cash basis, unless you have some specific need to have another set of cash basis books.

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@Rainflurry wrote:

@Navneet Singhal 

 

Further, you're using invoices to record a liability, not a sale,- Wrong. If that is not sale then why the sales report shows sales in the month of Invoice ? Any answers pls ?

 

then using a journal entry to move that liability to income. - P&l shows income properly.

 

Ok why dont u tell me a method where you recieve 12 months subscription income in advance and how will record it in QB. Wont you defer it ? will u first record it as income on Invoice then move it out thru JE or not ? then accrue the monthly income thru JE or not ? What are you gonna do ? Guide your method pls ?

 

That works, but just set up your books to correspond to being an accrual basis taxpayer and forget about how QB works on a cash basis, unless you have some specific need to have another set of cash basis books.

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If there is a feature right on top of the report and I want to learn about it then what's wrong with it? Also Why I am seriously interested is bcos I want to have my p&l report on a cash basis as well. Is that a problem ?

It's about learning the system in a practical way. If u know the answer then welcome to share else stay out pls.