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recording invoices & expenses on cash basis

Hello,

 

I'm a little confused on the appropriate/correct way to enter "invoices" I send to my tenants and payments I collect from them, particularly the date and timing of them. At first, I entered all of the invoices with the date the payment was due (the first of each month), and entered the payments on the date payment was sent (usually a few days before payment was due). Under "cash basis",I was thinking that a payment received on 12/25/2018 for an invoice dated and due on 1/1/2019 would be considered "revenue" in 2018... but it only shows up under the income statements in 2018 if I change the date of the invoice to a 2018 date, regardless of when the payment was received. 

 

Anyway, under "cash basis", what's the appropriate way to enter... I could enter that hypothetical invoice with a date of 12/31/2018 rather than 1/1/2019. Seems that would throw off the "due" date, since it's not technically due until the 1st.   Or is there some other way I should be entering this? 

 

Thanks!

Solved
Best answer 12-30-2018

Accepted Solutions
QuickBooks Team

Re: recording invoices & expenses on cash basis

Hello there, @jworkm.

 

I appreciate the details you've added in your post. I can share some insights about the difference between Cash and Accrual accounting preference in QuickBooks.

 

When using the Cash basis accounting, income and expenses affect the report at the time you receive a payment or pay a bill. For example, if you create a transaction with a date of 12/31/2018 and a due date of 2019, it'll be posted on your 2019 reports once Cash accounting is used. On the other hand, the Accrual basis preference follows the date when the invoice is created. 

 

To know more, you can use this article as a reference: Differentiate Cash and Accrual basis.

 

That should be enough information to answer your inquiry.

 

Keep me posted if you have additional questions. Just add a comment below. Have a wonderful day!

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Re: recording invoices & expenses on cash basis

This is not part of the process: "But only if the invoice is also dated within the same time period as the income statement." Dates matter; not Time Period. Actual Dates matter. Payments applied to invoices result in Cash Basis reporting for the payment date, not the invoice date. But you don't want the invoice dated Later than the payment. That results in the Money arriving for no known reason = uncategorized. Until the date of the invoice arrives, it is Uncategorized = we don't see why they sent money. You don't want Negative AR on the reporting.

 

Let's review:

 

If tenants pay early, you don't need an invoice; you use Sales Receipt. Then, for the last date of the month, Invoice the tenants not yet paid, for your reference and to manage Late Fees, with Terms of Date Driven 5th. Now you can manage payments arriving, see who didn't pay on time and assess late fees.

 

The invoice is the Date of sale. If rent is every month, the invoice is every month with Terms. Example: Invoice end of month, for payment due by the 5th of the next month.

30 Comments
QuickBooks Team

Re: recording invoices & expenses on cash basis

Hello there, @jworkm.

 

I appreciate the details you've added in your post. I can share some insights about the difference between Cash and Accrual accounting preference in QuickBooks.

 

When using the Cash basis accounting, income and expenses affect the report at the time you receive a payment or pay a bill. For example, if you create a transaction with a date of 12/31/2018 and a due date of 2019, it'll be posted on your 2019 reports once Cash accounting is used. On the other hand, the Accrual basis preference follows the date when the invoice is created. 

 

To know more, you can use this article as a reference: Differentiate Cash and Accrual basis.

 

That should be enough information to answer your inquiry.

 

Keep me posted if you have additional questions. Just add a comment below. Have a wonderful day!

Established Community Backer ***

Re: recording invoices & expenses on cash basis


@HoneyLynn_G wrote:

 

 

When using the Cash basis accounting, income and expenses affect the report at the time you receive a payment or pay a bill. This is the reason why the transaction with a date of 12/31/2018 was posted for 2019 reporting since it follows the due date or date of payment. On the other hand, the Accrual basis preference follows the date when an invoice created. 

 

 


"This is the reason why the transaction with a date of 12/31/2018 was posted for 2019 reporting"

This doesn't make sense.  Asker says payment was received early, in 2018, before the invoice date of 2019

 

"since it follows the due date or date of payment"

Due date has nothing to do with P&L reporting

 

 

"Accrual basis preference follows the date when an invoice created"

To be accurate it's the transaction date of the invoice, not the date created

 

 

Not applicable

Re: recording invoices & expenses on cash basis


@Malcolm Ziman wrote:

@HoneyLynn_G wrote:

 

 

When using the Cash basis accounting, income and expenses affect the report at the time you receive a payment or pay a bill. This is the reason why the transaction with a date of 12/31/2018 was posted for 2019 reporting since it follows the due date or date of payment. On the other hand, the Accrual basis preference follows the date when an invoice created. 

 

 


"This is the reason why the transaction with a date of 12/31/2018 was posted for 2019 reporting"

This doesn't make sense.  Asker says payment was received early, in 2018, before the invoice date of 2019

 

"since it follows the due date or date of payment"

Due date has nothing to do with P&L reporting

 

 

"Accrual basis preference follows the date when an invoice created"

To be accurate it's the transaction date of the invoice, not the date created

 

 


Yup, I think you got my problem. 

Playing around with the dates, it seems like the income statement DOES report as revenue based on the date of payment under cash basis... But only if the invoice is also dated within the same time period as the income statement.

 

So a payment recorded as received on 12/25/18 on an invoice dated 12/31/18 will show on my detailed income statement for the 2018 year with a 12/25/18 date... BUT if I change that invoice from 12/31/18 to 1/1/19, the the 2018 income statement will not show the payment received on 12/25... Instead, it will show on the 2019 statement as revenue dated on the date of the invoice (1/1/19). 

 

 

I think my solution is just to make use of the "terms" and date the invoice earlier... so rather than  dating an invoice as 1/1/19 due "on receipt", instead I'll date it 12/10/18 due "1st of the month". Not dating the invoice on or before payment can be received seems to risk create this problem of delaying the revenue recognition to the wrong period.

Not applicable

Re: recording invoices & expenses on cash basis

@Malcolm Ziman wrote:
@HoneyLynn_G wrote:

 

 

When using the Cash basis accounting, income and expenses affect the report at the time you receive a payment or pay a bill. This is the reason why the transaction with a date of 12/31/2018 was posted for 2019 reporting since it follows the due date or date of payment. On the other hand, the Accrual basis preference follows the date when an invoice created. 

 

 

"This is the reason why the transaction with a date of 12/31/2018 was posted for 2019 reporting"

This doesn't make sense.  Asker says payment was received early, in 2018, before the invoice date of 2019

 

"since it follows the due date or date of payment"

Due date has nothing to do with P&L reporting

 

 

"Accrual basis preference follows the date when an invoice created"

To be accurate it's the transaction date of the invoice, not the date created

 

 

Yup, I think you got my problem. 

Playing around with the dates, it seems like the income statement DOES report as revenue based on the date of payment under cash basis... But only if the invoice is also dated within the same time period as the income statement.

 

So a payment recorded as received on 12/25/18 on an invoice dated 12/31/18 will show on my detailed income statement for the 2018 year with a 12/25/18 date... BUT if I change that invoice from 12/31/18 to 1/1/19, the the 2018 income statement will not show the payment received on 12/25... Instead, it will show on the 2019 statement as revenue dated on the date of the invoice (1/1/19). 

 

I think my solution is just to make use of the "terms" and date the invoice earlier... so rather than  dating an invoice as 1/1/19 due "on receipt", instead I'll date it 12/10/18 due "1st of the month". Not dating the invoice on or before payment can be received seems to risk create this problem of delaying the revenue recognition to the wrong period.

Community Contributor *

Re: recording invoices & expenses on cash basis

Hello,

I'm reading your question and I have  a similar problem. Just not sure what to do. I've always worked in an accrual system. My question is this:

I wrote three payroll checks that won't be cashed until 2019 because we are low in funds and will have the funds in 2019. The checks are dated Dec.2018. 

How will I enter this transaction? Should I just write a journal entry in 2019 for outstanding pay roll in 2018? NOt sure what to do, Please help!? 

QuickBooks Team

Re: recording invoices & expenses on cash basis

Hello there, MoneyMoves.

 

Thank you for joining this thread. I can share some options for recording the three payroll checks while using the Accrual accounting preference.

 

You can either create the payroll check with 2019 date so it'll be posted on your 2019 books or write a journal entry. I also advise reaching out to your accountant who can tell you which process would be better for your specific books.

 

Let me know if you have additional questions about accounting preferences in QuickBooks. I'd be happy to assist you more. Wishing you all the best!

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Re: recording invoices & expenses on cash basis


@jworkm wrote:

 

 

Playing around with the dates, it seems like the income statement DOES report as revenue based on the date of payment under cash basis... But only if the invoice is also dated within the same time period as the income statement.

 

 


 

No not right.

It's simple:

A cash P&L uses the Payment date

An accrual P&L uses the Invoice date

 

Established Community Backer ***

Re: recording invoices & expenses on cash basis


@MoneyMoves wrote:

Hello,

I'm reading your question and I have  a similar problem. Just not sure what to do. I've always worked in an accrual system. My question is this:

I wrote three payroll checks that won't be cashed until 2019 because we are low in funds and will have the funds in 2019. The checks are dated Dec.2018. 

How will I enter this transaction? Should I just write a journal entry in 2019 for outstanding pay roll in 2018? NOt sure what to do, Please help!? 


The effective date is delivery of the check to the payee. The date written on the check or the date payee cashes the check is irrelevant.

If delivery will happen in 2019, then you can accrue total payroll expense (unpaid Dec) with a JE dated 12/31, and reverse it on 1/1

Not applicable

Re: recording invoices & expenses on cash basis

Well, I agree that's what it should do, but in the scenario I described, that's not what it does. if the invoice was dated in 2019, then it would not show the payment received in 2018 as revenue for  2018. It only showed as revenue for 2018 if the invoice was also dated in 2018.

Established Community Backer ***

Re: recording invoices & expenses on cash basis

This is not part of the process: "But only if the invoice is also dated within the same time period as the income statement." Dates matter; not Time Period. Actual Dates matter. Payments applied to invoices result in Cash Basis reporting for the payment date, not the invoice date. But you don't want the invoice dated Later than the payment. That results in the Money arriving for no known reason = uncategorized. Until the date of the invoice arrives, it is Uncategorized = we don't see why they sent money. You don't want Negative AR on the reporting.

 

Let's review:

 

If tenants pay early, you don't need an invoice; you use Sales Receipt. Then, for the last date of the month, Invoice the tenants not yet paid, for your reference and to manage Late Fees, with Terms of Date Driven 5th. Now you can manage payments arriving, see who didn't pay on time and assess late fees.

 

The invoice is the Date of sale. If rent is every month, the invoice is every month with Terms. Example: Invoice end of month, for payment due by the 5th of the next month.

Community Contributor *

Re: recording invoices & expenses on cash basis

Thanks @Malcolm Ziman! So, for Cash basis its okay to have an accrued payroll?

Established Community Backer ***

Re: recording invoices & expenses on cash basis


@MoneyMoves wrote:

Thanks @Malcolm Ziman! So, for Cash basis its okay to have an accrued payroll?


 I don't know whether the question applies to tax purposes or management purpose.  Accrual basis gives a better picture of business performance. You can run reports on either cash or accrual basis, but only if books are kept on the accrual basis. 

Normally payroll is on the cash basis, even if books are kept on the accrual basis. And normally the check date is the effective date, but you can't date a check today and leave it in a drawer for a month.

 

Established Community Backer ***

Re: recording invoices & expenses on cash basis

You NEVER  do this: "I wrote three payroll checks that won't be cashed until 2019 because we are low in funds and will have the funds in 2019. The checks are dated Dec.2018. 

How will I enter this transaction? Should I just write a journal entry in 2019 for outstanding pay roll in 2018?"

 

Whether something clears the bank or not has Nothing to do with anything. You issued Paychecks, and that is your "spent" date. You don't ever change Payroll dates to account for Banking issues. If you had this problem, you should never have issued paychecks at all. Paydate is not something to change.

 

You have no Accrued Payroll. You have Issued paychecks that have their date on them.

Community Contributor *

Re: recording invoices & expenses on cash basis

Thank you @Malcolm Ziman

that's what I'm going to do. 

 

so just need a little help. 

On journal date i would put 12/31/18 with the following entry: i;m not sure really how to do it. 

 

is it: accrued payroll (december) would  i put the amount as a debit or credit?

what would be my second entry to equal out the account?

 

and to reverse it: would i just enter the same names with a date of January 1/1/19???

Established Community Backer ***

Re: recording invoices & expenses on cash basis

What you are proposing is wrong for your own accounting, wrong for Payroll reporting, and wrong for reporting to the employees.

 

It is time to stop asking the internet and get direct support from your own CPA before making a mess.

Established Community Backer ***

Re: recording invoices & expenses on cash basis


@MoneyMoves wrote:

 

 

is it: accrued payroll (december) would  i put the amount as a debit or credit?

what would be my second entry to equal out the account?

 

and to reverse it: would i just enter the same names with a date of January 1/1/19???


Is this for management purposes or tax purposes?   If it's for tax purposes, there is no point because payroll is on the cash basis

Not applicable

Re: recording invoices & expenses on cash basis

Payroll is NOT recorded on cash-basis if you are doing accrual-basis accounting on your books.

 

I think this is where the confusion lies:

 

Payroll is "cash-basis" to employees, meaning their W-2 only shows what has been paid to them in cash as of 12/31.

 

All individuals are on "cash-basis" for their personal accounting and taxes.  Only companies use accrual-basis accounting. 

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Re: recording invoices & expenses on cash basis


@mzterix wrote:

Payroll is NOT recorded on cash-basis if you are doing accrual-basis accounting on your books.

 

 


Payroll is always recorded on the cash basis, of course.  But you can accrue payroll for management purposes, if that is your accounting policy.  I believe that for income tax purposes payroll has to be on the cash basis even if you are an accrual-based tax filer, not sure.

You can run reports in either basis in QB, but only if you keep the books on the accrual basis

Established Community Backer ***

Re: recording invoices & expenses on cash basis

What @MoneyMoves proposes is wrong for every perspective. You don't make more entries to move the accounting in consideration of Banking. That's why it's Wrong.

Senior Explorer ***

Re: recording invoices & expenses on cash basis

Hi @MoneyMoves,

 

I understand you are on Cash Basis accounting and the payroll checks will be written in 2018 but won't be cashed until 2019 when funds are available to cover them. If you want those checks to show on a profit and loss report for 2018, then write the payroll checks with a 2018 date.  As @Malcolm Ziman says, cashing them does not affect your reports. It is the date of the payroll check that affects the reports.

 

If you want the payroll checks to show on a 2019 report for Cash Basis accounting, then they will need to be dated in 2019. If this is the case, you could enter the payroll in a liability account called Wages Payable and then write the actual checks in 2019 once you have the funds.

 

I hope this clarifies things.

 

@jmwatkins

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Re: recording invoices & expenses on cash basis

This is Wrong for nearly all US employers: "If you want the payroll checks to show on a 2019 report for Cash Basis accounting, then they will need to be dated in 2019. If this is the case, you could enter the payroll in a liability account called Wages Payable and then write the actual checks in 2019 once you have the funds."

 

PayDate is the date the Checks are issued; when they get submitted through Banking has nothing to do with anything. And accruing Payroll expense as Payable doesn't apply to nearly any small business in the US, so never follow that direction without first consulting your own CPA.

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Re: recording invoices & expenses on cash basis


@qbteachmt wrote:

 accruing Payroll expense as Payable doesn't apply to nearly any small business in the US,


If you don't accrue all expenses, including labor expense, you are misstating business performance, no matter the size of the business

Community Explorer **

Re: recording invoices & expenses on cash basis

So if I understand your comment correctly,  on a cash basis invoice income is not recognized until a payment is received.  The invoice has an income account associated with the invoice and the invoice creates a debit in the AR account when it is entered.  If the income account cannot be credited until payment is received,  what account is credited to offset the AR at the time the invoice is created.   So if I create an invoice on Jan 1,  with a due date of Jan 30 and receive payment on Feb 15,  my income account will not show anything until Feb 15. Not sure of what all the Journals would look like from the time the invoice is created through the point where payments are eventually deposited after all the receive payment activity etc.

QuickBooks Team

Re: recording invoices & expenses on cash basis

You're on the right track, @misokol!

 

Your invoice payment date will only be recognized by your reports on a cash basis. I'll be happy to share a few insights and help you from there.

 

To start with, even if you've created and dated your invoice on January 1st, your reports will always recognize your invoice payment date if it is on a cash basis.

 

Thus said, you'll see your invoice payment date of your invoice when you open your reports on a cash basis.

 

In addition, here's a couple of screenshots for your visual reference of the actual reporting of your invoice transaction.

 

Capture13.PNG Capture14.PNG

 

As always, you can visit our Help Articles page for QuickBooks Desktop if in case you need to learn some "How do I" steps.

 

If there's anything else that I can help you with, please let me know in the comment section down below. I'll be always around ready to help.

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