Quickbooks Cash Basis Balance Sheet Journal Entry for Accounts Receivable

[Bjorn]

Are you advanced certified in Quick-books?

I'm looking to start a conversation on "best" practices to do a reversing journal entry where Quick-books has an accounts receivable on a cash basis balance sheet. I know the ordering of the data entry of the accounts is very important for Quickbooks.

There are many ways to do things in Quick-books, but I'm looking for feedback on the Intuit way. I want to become advanced certified and some of the topics are not covered as well as I thought they should be in their classes. Please do not discuss specific questions as per the pro adviser rules. However, general theory conversations should be within the spirit of the program.

I'm looking for specific examples of a journal entry on say 12/31 and then the reversing entry on 1/1. The goal is a cash basis balance sheet does have normally have accounts receivable.


Mahalo,

Bjorn

[JohnH]

This is strictly off the top of my head, but I'd set up a contra-account (maybe call it A/R Cash Basis Adjustment) in the assets section of the COA. Then at 12/31, make a credit entry to that account in the amount showing in A/R. The debit would be to "Retained Earnings", although you could preserve a better audit trail by setting up a matching contra-account in the equity section which would handle this special transaction each year.

[taxxcpa]

If you don't reverse the effect of the Dec 31 Accounts Receivable until Jan 1, that would leave the related income on the Dec 31 books, so it would not be cash basis accounting. It would include "accrued" income for the period ending Dec 31.

[JohnH]

I think he means he will zero out the A/R balance on Dec 31 to get to cash basis, then reverse that entry on Jan 1 to put things back where they should be. It will work.

[Golden Rocket]

Double Basis

I'm not a big fan of Quickbooks (not because the programming is bad, but because clients have carte blanc ability to abuse it).

But I believe if you do all your accounting on an accrual basis, QB will give you the ability to print financial statements on the cash basis without performing any journal entries/reversals.

Apparently prior to running the statements, it takes the receivable/payable/accrual/deferred accounts and moves them into a "twilight zone" when cash basis statements are prepared, then reinstates these balances automatically at all other times.

Again, I'm not the sharpest tool in the shed when it comes to Quickbooks, so see if you can get someone else to either corroborate or refute what I am saying...

[mactoolsix]

Bjorn,
I assume you have logged into the Intuit Quickbooks forum?

If not, you might give it a try - I know they have some good participants for the Lacerte forum

http://community.intuit.com/category/quickbooks-general-forum

Mike

[geekgirldany]

I am a Pro Advisor. Not exactly sure what you are asking.

In Quickbooks, when you do a journal entry on say 12/31, save it, you can then go back to that same journal entry and click the Reverse button. It will create a new journal entry and you can enter the date you like.

On Cash or Accrual on Quickbooks, Under Preferences you select Cash or Accrual Reporting for the Financial Statements. You can also change this in the Reports themselves.

Since quickbooks handles the reporting this way, I am not sure why you would need any kind of adjustment for Accounts Receivable.... if it is done correctly.

There are various reasons why there would be a balance in A/R in QBs.

Look at their article here:

http://support.quickbooks.intuit.com/support/Articles/INF12397

[JohnH]

I've never trusted QB's automatic selection of "Cash vs Accrual" on reports. Too much goes on in the background and there's no way to see what actually happened. QB must make some assumptions which aren't always valid when it adjusts accrual reports to cash. That's why I gravitate toward using journal entries to convert an accrual-basis statement to a cash-basis statement. It leaves a nice trail and you can see any debits & credits in the traditional manner. This also allows you to control the process and keep entries out of the background. I know it's more of a "green-eyeshades" approach, but that's just my preference.

[ATSMAN]

From a practical perspective, what % of your small business clients are on accrual basis? I bet it is a small number. If I try to recall my book of business I think I have 1 sub-S and 2 LLC on accrual and they were setup that way before I took over.
Each year it is a pain, especially the December journal entries to make sure they are correct.

[Maribeth]

I've never trusted QB's automatic selection of "Cash vs Accrual" on reports. Too much goes on in the background and there's no way to see what actually happened. QB must make some assumptions which aren't always valid when it adjusts accrual reports to cash. That's why I gravitate toward using journal entries to convert an accrual-basis statement to a cash-basis statement. It leaves a nice trail and you can see any debits & credits in the traditional manner. This also allows you to control the process and keep entries out of the background. I know it's more of a "green-eyeshades" approach, but that's just my preference.

Agree wholeheartedly with you. I never use the QB accrual/cash report adjustment. Don't know the entries that it is making; don't trust the entries that it is making.

The entry I would make as of 12/31 would be a credit to deferred revenue (a liability account) for the amount of the accounts receivable. That way your balance sheet is now on a cash basis.

The debit is to a contra-revenue account called "Change in A/R balance". That way the revenue has been reduced on the income statement.

You can reverse this entry at 1/1, or simply continue to change the balance in the deferred revenue account to agree with the a/r balance at the end of the next year.

[JohnH]

oops!
You are right - the offsetting entry would be a contra-revenue account (not contra-equity).
Thanks for catching that.

[BHoffman]

Hi Bjorn - if there is a balance in either AR or AP on the cash-basis balance sheet, it is usually due to a data entry error.

Sometimes I'll see a negative (credit) balance in AR. This will happen when the date of the invoice is AFTER the date of the payment received. For example, let's say the payment was entered as received on Dec 31, 2012 but the invoice is dated Jan 1, 2013.

[Gretel]

There are various reasons why there would be a balance in A/R in QBs.

Look at their article here:
http://support.quickbooks.intuit.com...icles/INF12397

I haven't looked at the articel but I know that very simple things like not applying a payment to an invoice will show as A/R on the BS.

[geekgirldany]

You are right Gretel.

Any of my clients on accrual basis, I will switch the balance sheet over to cash basis. This will often show mistakes that need to be corrected. Does not matter cash or accrual.
It is actually a great tool for finding errors that the client has made.

I still see no reason to do adjustments when you can switch the reports over to cash basis. I guess I've just learned how to work with Quickbooks to find mistakes. Plus everyone has their own way to deal with QBs.