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tk8212
March 21, 2024
Question

Challenges using certain features with cash accounting

  • March 21, 2024
  • 2 replies
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I manage finances for a small organization, and we have always used cash accounting and will likely have no reason to move away from this.

There are several features I've noticed seem to be designed for the accrual method, and I can't figure out if we can make them work better for cash accounting:

Bill Tracking

We pay many vendors with checks, so there are usually three dates involved: the date on the bill (bill entry in QB), the date the check was written (payment entry), and the date the check was cashed (bank transaction). Two issues have come up here:

- The bill itself is where the expense account is tracked. This means that unless we change that date after the check comes in, the bills don't show up on reports for the right date range. This affects our P&L and Balance Sheet.

- Even paid bills are ONLY showing up when I switch certain reports to Accrual, such as vendor reports.

 

What I would like to have happen here is that these three events are fully "merged" with the bank transaction being the source of truth, as that's how cash accounting should work.

 

Payroll

For the most part, this is working well, but we run into issues when we need to reimburse someone. I created a payroll line item for "Reimbursements," and QuickBooks has decided this is an account now, but unlike manually created accounts, I don't have any ability to edit it. This transaction can't be split and shows up on its own on P&L, so we don't know what expense categories these actually belong in.

If we were doing accrual accounting, it would make sense to record receipts when they come in and credit them to a reimbursement account that could be debited at payroll, but that's also going to pose issues with dates in having them show up in the right months on our reports.

 

I'm starting to think my best bet is just not to use these features, as much as they simply the payments side of my duties, and just focus on importing and categorizing bank transactions cleanly, but I figured I can't be the first person to run into this, and maybe I'm just missing something or there is a clever solution.

2 replies

A
AnneMariee
March 21, 2024

Thanks for taking the time to share your concern here in the Community, tk8212.

 

I'm here to provide an overview of the different accounting methods so you can decide which one fits your business needs better.

 

The primary difference between cash and accrual accounting is the timing of when income and expenses are recognized. Cash basis accounting records revenue and expenses when actual payments are received or disbursed, focusing on cash flow. This means that a bill will only be recorded once it is paid. On the other hand, accrual accounting records revenue and expenses when transactions occur, regardless of when money is received or paid out. This means that a bill will be recorded once it is issued, even if the payment is not yet received.

 

Additionally, if you want to match your QuickBooks transactions with the transactions from your bank feeds, it's important to note that QuickBooks only recognizes matches with the same amounts, dates, and types of transactions. 

 

Furthermore, default accounts can't be edited in QuickBooks. This is why you're unable to edit the account for your Reimbursements payroll line item. Instead, you can change the account to your desired one. To do so, let's head to the Chart of Accounts and create a new one.

 

  1. On the left navigation panel, click Transactions.
  2. Go to the Chart of Accounts.
  3. Click New.
  4. Create a new account that you want to associate with your Reimbursements line item.

 

After creating the account, go to Payroll settings and map the payroll item to the account following these steps.

 

  1. Click the Gear icon in the top right.
  2. Go to Payroll settings.
  3. Scroll down. Then, click the pencil icon in the Accounting section.
  4. Make the necessary changes.
  5. Press Save and then, Done.

 

If you'd like to see different reimbursement categories on your reports, you'll need to create a separate payroll line item for each one. You can use the steps provided earlier to create a new account and assign it to each item.

 

For personalized advice for your business, I suggest seeking the assistance of an accountant. They possess the necessary expertise to help you choose the most suitable accounting method for your business needs. Additionally, they can assist you with accurately recording your transactions to ensure that they reflect correctly on your reports.

 

For more info about the different accounting methods, please refer to the articles below:

 

For future use, here's an article on ensuring your QuickBooks accounts correspond to your real-life ones: Reconcile workflow.

 

Please don't hesitate to come back to the Community if you have any other concerns about QuickBooks. I'll be right here ready to assist you.

Rainflurry
Rainflurry
March 22, 2024

@tk8212 

 

"Two issues have come up here:

- The bill itself is where the expense account is tracked. This means that unless we change that date after the check comes in, the bills don't show up on reports for the right date range. This affects our P&L and Balance Sheet."

 

When you run cash basis reports, the bill payment date (not the bill) books the entries to your P&L and balance sheet as expected on cash basis.  There's no need to change dates.  

 

"- Even paid bills are ONLY showing up when I switch certain reports to Accrual, such as vendor reports."

 

Can you post a screenshot or provide additional details?  When you run vendor reports on cash basis, QB will list the Transaction Type as 'Bill' but the date is the bill payment date, not the date of the bill itself - also as you'd expect on cash basis.   

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