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itspaulo
February 27, 2021
Question

HELP! Cash basis reports not expensing inventory purchases correctly

  • February 27, 2021
  • 1 reply
  • 0 views

Hello! I'm relatively new to QBO and have been having a hard time getting my cash basis reports to work correctly. I have contacted QB about this and they seem to not have a clue on how to fix it so I'm hoping that someone on here can help me!

 

Background:

When I first started using QBO (mid 2020), I spent quite a bit of time with support discussing how I can use their inventory feature because I wasn't sure what the best practices were for a business that had inventory made up of several separate purchases like ours. The main item that we sell are boxes that include existing products from other brands bundled together but since we don't sell it individually, I wanted my inventory in QBO to just be the finished product (boxes of bundled items). After talking through it with several support agents without any luck, I ended up finding a workaround where I would book all my inventory purchases into an inventory clearing account and then when I have all purchases booked for a particular item we sell, I then book an inventory adjustment into the main inventory account. That way, I can always reconcile the qty of my QBO inventory to my inventory on hand. This also worked great so that when I book sales for those items, the COGS would automatically be expensed.

 

Issue:

I only ever look at accrual basis financials and it this has worked all year long but now, my CPA asked me for cash basis financials and when I pulled it up, it was very obvious that something was off.

 

I'm not sure if it's because I use that 'Inventory Qty Adjustment' transaction in QBO and it doesn't recognize it for cash basis but that doesn't really make sense to me because that's just an adjustment. Everything I book into the that clearing account is essentially stuck in that inventory account in cash basis even through I already paid for it in 2020.

 

As you can see in the attachment, my inventory in cash basis is much higher than in accrual which doesn't make any sense! I've attached PDF which includes BS comparison, transaction detail of clearing account, and inventory qty adjustment to give you better idea of what is happening.

 

Has anyone ever come across this issue or have any tips? I'm a bit lost on what to do next to get this fixed.

 

Thank you so much!

1 reply

Kristine Mae
Kristine Mae
February 28, 2021

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:

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

I
itspauloAuthor
February 28, 2021

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.

A
AileneA
February 28, 2021

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:

 

 

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

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