How to enter a lawsuit settlement paid over time

I don't understand this part: "Back up and start over. "Sell" the settlement on an Invoice as other income for $200,000"

Putting an Other Asset item onto an invoice (AR is also an Asset) is Backwards. This isn't AR and it isn't Sales.

Are you a Cash or Accrual Basis reporting entity? Why would you want to show the entire $200,000 anywhere, if you have not yet received it? Who told you the entire settlement amount is a Factual Accounting Value to be entered now?

Thanks to you both.  I had actually just gotten away from the whole invoicing method because the way I did it made it look like sales.  While the settlement was over work not paid for it was work done several years ago and at this point those invoices were written off and the amount was not consistent with them anyway.  

Regarding entering the whole amount it is an amount owed to the company therefor, much as if the company would have loaned the amount, it is an asset of the company.  As the balance is paid there will be an amount of the asset left and it would be nice, but not strictly necessary I suppose, to have that number available on the balance sheet.  We are cash accounting for tax purposes so the only income that should be shown on taxes is the amount received.

"Back up and start over" he said Journal Entries already in place. Back up means delete or void the journal entries and start with new "correct entries" using tools. I said to enter it as Income on the Invoice. It is income now and in the future. Other than wrong ways of journal entries there are only 3 (preferrable just 2) ways to enter income 1. Invoice+Payment 2. Sales Receipt 3. in a Deposit as a line item (not preferred)

I also said consult with his own tax CPA to determine if the applicable law allows this award to be booked over time. And to comply with both possibilities (by simply toggling between cash and accrual reporting depending on who wants to see what) I see an Invoice for the award as the solution to the cash income spread over 10 + years. Under PURE Cash rules one can not invoice anyone or enter bills for future payment so we use, as allowed by IRS, hybrid cash or whatever it is called. You know very well that in Cash P&L only actual "cash" received in any fiscal year is reported as income and so one initial Invoice followed by 10 or 11 payments. There can and is many times a difference between what income can be deferred based on fed or state so there exists the distinct possibility that regardless of being Cash basis (he said so) he might for state (and even local) have to report the entire award this year.

But he wants to see this award on his balance sheet. Not in so many words, but that would be the only reason to code it as an asset - which under Accrual would be correct as awards, lawsuits, etc either for or against should be posted as contingencies with notes on the financial statements.

It shouldn't be on the balance sheet under normal circumstances but it can depend on the audience. Maybe it is necessary on a BS for a bank to show viability due to this supposedly guaranteed future income. Certain "paper" for future payments can serve as collateral for loans but that collateral has to be on the books (or should be)

Thank you again John.  The issue really is I run the business on accrual, which in my opinion is how any business should be run.  When the business was revenue 2M and many employees it was imperative that I run it that way.  My CPA advised stay cash basis and that proved extremely important during this dispute because the amounts were much bigger and a tax bill on the whole amount in the years it was happening would likely have bankrupt me.  Anyway I'm looking over your very detailed answers to see if that will work for me.  thank you.  The company is now very much smaller so it might simply not be necessary to run it on accrual anymore in which case I can just know that's out there and not worry about the balance sheet.  

correct on both points and advice taken.  thanks

we are getting a little out of sync on the conversation but to your point about proving the debt both my lawyer and I have signed copies of the filed settlement agreement so I can't imagine that would be an issue.

in regard to your original suggestion.  "sell the 200k in an invoice", then you say "to get the remaining 100k on the balance sheet".  Wouldn't it already be on the balance sheet when reported as accrual?

Running the business on Accrual Basis for reporting and management is not the same as making or not making entries for Cash Basis.

To make an entry that Accrues the entire amount in Other Asset, your offset is Income; but this is not yet income. Debt owed to your business is not income until it comes in, for cash basis. If you are trying to show someone is in debt to you, but you did not Pay Out any money or sell them a fixed Asset, you really do not want to see the full balance owed to you as Income, already. That is Unrealized and bad for the accounting. That is Law Contract Settlement activity; not your actual financial entry.

"I did a journal entry for the 200,000  crediting other income and debiting settlement."

And doing JE bypasses Cash Vs Accrual Basis reporting, so that is the Worst thing to do, for "I want Other Asset offset as $200k income, even though no money happened."

You likely need to take this to your CPA, off the internet.

I understand accrual vs cash.  I want to show the total remaining owing to me on the balance sheet in accrual format.  I understand that it will not show in cash format as owed money is not cash, AR doesn't show on the balance sheet for cash either right?  So showing the books in cash is for tax purposes because that is how I elected to be taxed and it's legal.  Showing the books in accrual is for me to manage cash flow and loans and forecasts and planning, etc.  The thing I've learned here is that journal entries don't respect cash vs accrual which is disturbing because it would be easy and obvious but that's the way it is so I have to live with that.

You are countering your own comment: "I want to show the total remaining owing to me on the balance sheet in accrual format."

That means you intend to enter Income.

"I understand that it will not show in cash format as owed money is not cash"

That's Not Correct for what you are proposing to do. It Shows.

"AR doesn't show on the balance sheet for cash either right?"

What you have confused is Accounting and Functions. AR Functions of invoices and payments and credits memos are properly honored by the program's interface for Proper reporting basis. Your JE is always going to show.

You just Bypassed Cash vs Accrual Basis.

"The thing I've learned here is that journal entries don't respect cash vs accrual which is disturbing because it would be easy and obvious but that's the way it is so I have to live with that."

What you are proposing to enter as if that is Actual, is something called Unrealized.

Again, I recommend working with your own CPA on this, before you make a bit of a mess in the accounting for something you want to Document, that is not Actual, at this time.