HELP! Cash basis reports not expensing inventory purchases correctly

I will share what I know about the Cash and Accrual accounting methods, Itspaulo. 

Once you select the cash basis method, the COGS amount is realized once the invoice is paid. Then, the inventory asset account is reduced.

If you selected Accrual, the COGS has realized whether it's a paid or unpaid invoice. The inventory asset account is also reduced.

You'll want to check how the inventory transactions are entered in QuickBooks Online. You can click the balance you're seeing on the Balance Sheet report for that account to review the details. Then, change the reporting period to "All Dates".

Let me include these articles to help you with the reporting:

• Choose between cash and accrual accounting methods in reports
• Understand inventory assets and cost of goods sold tracking

Get in touch with us again if you have more questions. We're just one comment away. Keep safe!

Hi Kristine - thanks for the response. I appreciate the information you shared but I already know what should be happening. My issue is that the cash basis reports are not working correctly given what SHOULD be happening. If you look at my attachments, you’ll see that cash basis reports has inventory higher than in accrual basis which doesn’t make sense since like you said, with cash basis, the inventory asset should be reduced when paid.

Hello, itspaulo. 

Thank you for getting back to us. Yes, you're correct as mention above cash basis will be reduced once the invoice is paid. Let's go ahead and open the transactions and double-check if the transactions you've entered are correct and assigned to the right account.   

Additionally, cash basis report only shows income if you have received cash and expenses if you have paid cash. 

To know more about the differences between Cash and Accrual basis, you can check these articles:

•  Choose between cash and accrual accounting methods in reports 
• Change your accounting method 

Feel free to leave a comment below if you have other questions. I'll be happy to help you out. Stay safe!

Yup, double checked that the transaction is correct and assigned to the right account.

The expenses are booked with the payment account set to the credit card so it should be showing up as COGS on cash basis, not still stuck in inventory.

I've looked at all the help docs and understand how it SHOULD be working but I'm telling you that it isn't. The cash basis reports are not showing up correctly. Is there anyone that can help with this?

Hello, @itspaulo.

When using tracking inventory items, you'd want to make sure that it is assigned to the right COGS account. I've added a screenshot for your visual reference.

By doing this, every time you create an invoice and use the inventory item COGS will be tracked automatically. You can run the Transaction Journal Report for the invoice/sales receipt.

You'll see the Sales/Accounts Receivable transaction and you will see the Inventory/COGS transactions which credit the Inventory Asset account and debits the COGS accounts.

Just a heads-up, the ability to manually enter COGS-related transaction in questions is not available. You'd want to make sure to associate it with an inventory items. Also, COGS amount will not be shown on the statement of financial position or balance sheet. Instead, you'd see a decrease of your Inventory Asset (in Balance Sheet) every time you sell an item. You can browse to this article for more detailed steps: Set up and track your inventory in QuickBooks Online.

However,  it will be displayed under the profit or loss figure shown on the statement of financial position that is calculated in the statement of comprehensive income under the head cost of goods sold. 

You can read through this article to learn more insights about the process: Impacts of inventory tracking on balance sheet and profit & loss reports.

Feel free to drop your comments below if you have other questions or concerns. I'm always here to lend a hand.

Hi IamjuViel! Thanks for your response! The visuals you posted were very helpful but once again, I'm doing everything you mentioned but am still not getting the expected outcome.

The workaround I am using (and explained in the original post) of booking to a clearing account first is so that I can later reclass into an inventory item so that the COGS will be automatically booked.

So I'm doing exactly what you pointed out to do with the added middle step of booking initial purchases into an inventory clearing account and then booking inventory adjustment out of clearing into normal inventory using an inventory item.

But as mentioned, the inventory that I already paid for is still on the balance sheet when I look at cash basis even though it SHOULD have all been flowed through the profit & loss already (since it was paid for). If you haven't already, can you take look at the images I attached in original message so you can see what I mean?

Hopefully that makes sense! Let me know if you need any more information and I'm happy to provide.

The exact same issue is happening to me, where I've sold inventory (entered correctly) via QB invoices the payments are showing up, but the COGS only appears when in accrual view, not in cash view. I'm planning on reaching out to QB support. I'll update here if I figure it out. I was really hoping someone had provided you a solution :/

In theory there should be no Inventory Asset account for cash basis as everything is expenses right away when you buy products and not put into Inventory. 

That’s expected and correct behavior. I am going through that too, but in reality that is what supposed to happen. There is no such thing is Inventory Asset in cash basis. Whole things goes to COGS when you pay the invoice. 

Cash basis people have to treat inventory as accrual.

Did you ever find a real solution to this? I am having the exact same problem. Every time I talk to a rep, they tell me the same bull about the difference between cash and accrual basis. I'm a CFO. OBVIOUSLY I know how accounts are supposed to flow through the financial statements. Everything is set up correctly for all of our products. COGS does not show in the P&L in cash basis even when an invoice has been paid.

And all these drones just read from these same forums and spit out a bunch of stuff that either doesn't make sense logically (as if they know nothing about how accounting works) or they're saying how something should work (like your above messages) and it just isn't.

I'm furious and I want to pull my hair out.

Did you find a solution??? I'm getting the same stupid responses from QB Support 

@7399socks, I hear your sentiments about the inventory tracking. Thanks for dropping by the Community and submitting your concern and experiences. I'll be sharing additional information to help you clear things out.

I understand how time-consuming it is to experience challenges in QuickBooks activities. COGS will only affect the Profit and Loss report Cash basis if you use the inventory item in your expenses, such as Paid bills, expense, and check. 

If you will review the Transaction journal of a sales transaction, it will not affect the amounts for COGS because it has already been affected through the expense transaction. Thus, it only helps us track the quantity that has been sold under that sales transaction.

Instead, we can run and review the Balance Sheet Accrual report because everything that affects the inventory asset is displayed in that report.

If you feel that this is something that we need to improve in the future, I recommend sending feedback to our software engineers. Here's how:

1. Sign in to your QuickBooks Online account.
2. Click the Gear icon on the top right corner.
3. Select Send Feedback below the Profile column.
4. Type in a brief description of your feature request, then Send.

Check out this article to learn more about the influence of inventory tracking on financial statements: Impacts of inventory tracking on the balance sheet and profit & loss reports.

If you want to personalize the data of your report, check out this article: Customize reports in QuickBooks Online.

Feel free to click the Reply button below if you have further questions about managing the Cost of Goods Sold or running reports in QuickBooks Online. We're available 24/7. Keep safe!

This is so wrong..... It worked right in QB Desktop. 

Now I write a check and put it to an inventory item (product) it goes directly to COGS, not Inventory when looking at the Cash Basis reports.

What a mess!

Small businesses can file cash basis but use the accrual method for inventory.