Accrual vs. Cash Revenue- Reporting

There are a few keys to consider regarding why your cash basis report is in QuickBooks Online (QBO), Jkope26.

Journal entries show up on both cash and accrual basis reports in QuickBooks Online (QBO). This means the initial journal entry you make to A/R and income for invoices sent each month will appear on both report types.

As for the sales receipts, they are likely being treated as cash transactions in the accounting system. They also affect the report for the cash method.

The prebill (liability) account complicates the cash vs. accrual difference. Since you're moving money from a liability account to revenue using sales receipts, QBO may interpret this as a cash transaction regardless of the reporting method.

Furthermore, the QuickBooks platform converts accrual to cash reports by removing unreceived income and unpaid expenses. However, in your case, the system isn't recognizing the payments received during the month because of how the transactions are structured.

To address this issue, we can review your account settings to ensure the pre-bill account is set up correctly as a liability account. Instead of using sales receipts to record revenue, you might explore using journal entries or invoices to better reflect the accrual-to-cash conversion.

Additionally, we advise consulting your accountant since they can review your specific setup and recommend the best way to structure your transactions for accurate cash and accrual reporting.

Keep me notified in the comment section below regarding the cash and accrual reporting setup. I'll be here to support you.

Thank you for your quick response. To clarify though, we do not use journal entries at all in this process.  Here is how our transactions are currently structured.  For example- Project A is 50K and is to be billed at the signing of the contract:

1- May 2024 Create Invoice for 50K 

Sales -> Invoice -> Create Invoice

By creating the invoice we have now debited AR 50K and credited prebill 50K (the liability account)

2- May 2024 Revenue Recognition (assume 25% of revenue is being recognized)

Sales -> Sales Receipt

By creating the sales receipt for Project A, we debit prebill for 12.5K and credit revenue for 12.5K

3- May 2024 Project A is paid for by client. 

The cash receipt is pulled in from our bank and applied to the open invoice. Debit Cash 50K Credit AR 50K

4- June 2024 Revenue Recognition (assume remaining 75% of revenue is being recognized)

Sales -> Sales Receipt

By creating the sales receipt for Project A, we debit prebill for 37.5K and credit revenue for 37.5K

Cash basis i would expect to see 50K revenue in May 2024

Accrual basis I would expect to see 12.5K revenue in May 2024 and 37.5K revenue in June 2024

Given this scenario and how we record our transactions, could you please explain why our reports wouldn't show this? 

Greetings, @jkope26. Let me provide more details about your P&L report and the comparison between cash and accrual accounting.

Each bookkeeping method has its advantages and disadvantages. It's crucial to comprehend each method to choose the best practices for your business. If you're uncertain, seek advice from your accountant. To help you decide between Cash and Accrual accounting, let me share more information:

On a Cash basis, you record income and expenses at the time you receive a payment or pay bill.

• This report counts income or expenses only once you get a payment or pay a bill.
• If you sent an invoice or got a bill but the money hasn’t changed hands yet, your report doesn’t include it in your income or expenses.

On an Accrual basis, you record income and expenses when you send an invoice or receive the bill.

• This report counts income and expenses regardless of whether the invoice or bill was paid or not.
• It includes income and expenses even if the money hasn’t changed hands yet.

However, if you're using the Revenue recognition feature might be activated and scheduled to run monthly. It could be causing the cash report to be inaccurate, as revenue in accrual accounting is recognized when it's earned, not when the money is received. We'll have to check the frequency of your revenue recognition feature to ensure accuracy. Follow these steps:

1. Go to the Gear icon, then select Account and Settings.
2. Click Sales.
3. In the Products and Services, select Edit.
4. Check if Revenue recognition is on or off and the Frequency is Daily or Monthly.
5. Select Save and then Done.

Moreover, let me share this article that can assist you in customizing your reports: Customize reports in QuickBooks Online.

Keep me posted if you still have confusion with your reports. Have a great day.

Thank you- this reply won't let me include an attachment, but I don't have the menu options you describe.  the only options I have to edit under products and services are:

• Show Product/Service column on sales forms 
• Show SKU column 
• Turn on price rules BETA
• Track quantity and price/rate 
• Track inventory quantity on hand

Also, the issue is not with the accrual based report- those reports are correct. The issue is with the cash based report, which should in theory only be pulling in cash received during that period?

Thank you!

I appreciate you for sharing your concern and providing additional details, jkope26. I recognize that these discrepancies can be challenging, especially when getting a clear picture of your company's financial performance.

Before we proceed, could you clarify whether you use the liability account as an item or posting account when creating sales receipts or paying invoices? The liability account can't be used for paying sales transactions directly; it's intended for tracking amounts owed by the company, such as loans, taxes, or accounts payable. If possible, please share how you've set up the account in the program. Any details you provide will assist us in resolving the issue.

If you create an item and the income account is a liability, the transactions should show in the cash method report. Ensure that you set the correct Report period and other filter customization within the report to show the accurate data. Also, liability accounts will not appear in the Profit and Loss report. They are shown in the Balance Sheet report instead.

Additionally, the steps provided by my colleague are accessible in QuickBooks Online (QBO) Advanced. It appears you may be using a different version, which is why you're unable to find them.

To learn more about cash and accrual methods, check this link: Choose between cash and accrual accounting methods.

Furthermore, I'm adding these articles on how you can filter out the data from your reports and save its customization settings for future use:

• Customize reports
• Memorize reports

Feel free to return to this thread if you need further assistance with your QuickBooks Profit and Loss report. We're here to help.

thank you. i understand the difference between cash and accrual methods and how revenue should be calculated under both.  what i don't understand is why my reports don't reflect these differences- they are pulling in the exact same info! the cash based report does not pull in any payments!  

in a previous reply, i gave a very clear example of our transactions and what i would expect to see in revenue as a result- but i do not. 

also, i do not see any area in my account settings where i can configure cash and accrual based reports (i also was unable to see the options under products and services that someone else mentioned.) could you be more specific on where i should be looking?  thank you.

Thanks for the prompt response, @jkope26. Let me provide additional details on why the cash and accrual methods are not showing correctly.

It's good to know that you totally understand the difference between the cash and accrual basis. Regarding the setup in the Accounts and Settings, follow these steps to proceed with reviewing how your reports will be displayed:

1. Go to Settings, then choose Account and settings (Take me there).
2. Navigate to the Advanced tab.
3. Click the Edit button in the Accounting section.
4. Choose the appropriate Accounting method.
5. Tap Save, then Done.

Refer to this article for more details: Choose between cash and accrual accounting methods in QuickBooks Online.

Furthermore, please make sure to select the correct Report period and other filter customization within the report to show the accurate data.

However, I recommend reaching out to our technical support  team if the issue persists. One of our experts has the necessary tools to check your account securely and perform a screen-sharing session to investigate this behavior further.

I've also included this resource for your reference in case you want to export your reports to Excel: Export your reports to Excel from QuickBooks Online.

If you still have questions or concerns about managing your reports in QBO, I'm just around to help you out. Don't hesitate to reply. Stay safe!

I already know how to select the accounting method- previous poster indicated there were ways to configure the reports.

unfortunately, none of the above responses have helped with my issue-I thought I was being clear but based on the answers being provided, I guess I was not.

I can imagine the hurdle you've been through trying to fix the cash basis report issue, @jkope26. I'll make it up to you by ensuring you get the urgent help you need.

You can contact our support team for them to create an investigation and look further into this matter. Here's how:

1. Log in to your QuickBooks Online (QBO) company.
2. Navigate to the Help (?) menu.
3. Open the Search tab and select Contact Us.
4. Pick Ask about something else and input a brief explanation of your concern in the provided field.
5. Click Continue.
6. Choose the Chat or Callback option.

Their support hours are as follows:

• Plus, Essentials, Simple Start: Monday to Friday, 6 AM to 6 PM PT, and Saturday, 6 AM to 3 PM PT
• Advanced: 24/7

In case you want to open, print, and personalize payroll reports, you can check out this article for more guidance: Run payroll reports.

You can always get back to this thread if you have any other concerns besides the incorrect cash basis report. I'd be more than willing to help. Take care.

@jkope26 

You've been very clear explaining your issue.  QB employees just don't understand how to assist.  Frankly, we're not sure that these "employees" aren't just AI-generated responses.

First, QB does not handle cash vs accrual reporting with balance sheet items on invoices accurately.  You can't trust cash vs. accrual reports to be accurate when using them.

Second, I'm confused as to the reason for the invoice that debits A/R and credits the Prebill Liability.  That's essentially a meaningless transaction from an accounting standpoint.  It's like saying "I owe you $50K and you owe me $50K." - the two cancel each other out.  In the scenario you described, why not just eliminate the $50K invoice and start with a $12.5K invoice that debits A/R and credits revenue?  Then, receive the $50K payment on that invoice.  You now have a negative A/R for that customer of $37.5K.  Then, create the June invoice for $37.5K and apply the credit to it.  Your cash vs. accrual reports will be accurate doing it that way.  The only wonky thing about that process is the negative A/R balance after receiving the $50K payment.  That's required for QB to accurately report cash vs. accrual.  You can JE it to a liability account until you bill the final $37.5K if it's bothersome.  

thank you for your reply! agreed- sometimes i wonder if its AI generated or actual people responding to my questions!

the reason we are using the prebill account (using the example from earlier.)

contractually, we have to bill the 50K upfront, so we need to create an invoice and establish AR for 50K.  but, since we haven't earned the revenue yet, we put the credit to the prebill account that we set up- essentially an account to park the $ in ahead of revenue recognition.  as we recognize the revenue, we debit that account and credit the revenue account.

if we did it the way you suggested, we wouldn't have a good way of tracking our receivables/manage cash flow...unless i'm misunderstanding your suggestion.

@Rainflurry sorry, meant to tag you in my reply above!

I am having the EXACT same issue. I thought I wrote this post and forgot for a minute. When I run a P&L, the accrual button and the cash button both show the same for income (all accrual). Cash doesn't show actual dollars received. I want to see our income as accrual AND I want to be able to see the actual dollars that came in each month. I have been recognizing income as we earn it with sales receipts as I was taught years ago. I tried recognizing income using journal entries, thinking that it may fix it, but it did not. I can't figure out why the cash report basis doesn't show cash.

@lori126 

"When I run a P&L, the accrual button and the cash button both show the same for income (all accrual). Cash doesn't show actual dollars received. I want to see our income as accrual AND I want to be able to see the actual dollars that came in each month."

QB's ability to differentiate cash vs accrual basis income is limited to invoices with products mapped to income accounts.  If you use a sales receipt (SR) with an income account, cash and accrual income is the same because you received the payment at the time of the sale.  If you use SRs or invoices with products mapped to asset or liability accounts, QB cannot differentiate cash vs. accrual because there's no income account associated with the product.  

"I have been recognizing income as we earn it with sales receipts as I was taught years ago. I tried recognizing income using journal entries, thinking that it may fix it, but it did not. I can't figure out why the cash report basis doesn't show cash."

QB reports journal entries on both cash and accrual basis reports.  Again, if you want accurate cash vs. accrual reporting, you must use invoices with products mapped to income accounts.