Overview

The Cash Basis Balance Sheet (CBBS) should not show AR and AP balances because these accounts track open invoices and unpaid bills. The CBBS should include only closed, or paid, transactions. However, QuickBooks does include AR and AP on the CBBS. Explaining why, and what to do about it, follows:

Every QuickBooks transaction has one source and one or more target accounts. You can view these accounts by clicking the Journal button at the top of the transaction window, or by pressing Ctrl+Y on your keyboard. The first line of the transaction journal is the source. All subsequent lines are the targets. A transaction has one account for the source and one account for each target.

 Open AR and AP transactions that include balance sheet accounts as target accounts create this issue. Even if a transaction status is open, QuickBooks includes the target amounts in the CBBS. To keep the CBBS in balance, QuickBooks also includes an offset amount in the source account of the transaction. If the transaction is an invoice, the source account is AR and the offset shows in AR. If the open transaction is a bill, the source account is AP and the offset is shown in AP. When the transaction is paid, the offset goes to cash instead of AR or AP.

 Example 1. An open invoice that includes sales tax with a sales tax preference set to the invoice date (accrual basis) has the source account Accounts Receivable (AR), and one of the target accounts Sales Tax Payable (another balance sheet account). QuickBooks assigns the credit to the target account (Sales Tax Payable) and to keep the CBBS in balance, QuickBooks includes an offset to the transaction’s source account, AR. Thus, the CBBS shows a credit to the target account, Sales Tax Payable, and a debit to the source account, AR. When the invoice is paid, QuickBooks takes the cash offset instead of AR.

Example 2. An open bill from Office Depot for office supplies and a desk shows as a credit to Accounts Payable (AP) as the source account, and a debit to Office Expense and Fixed Assets (target accounts). Running the CBBS report shows the amount for the desk in AP. Although most of the bill is ignored because it is unpaid, the debit appears n the balance sheet account Fixed Assets. To keep the CBBS in balance, QuickBooks includes the offset in the source account of the bill, AP. When the bill is paid, QuickBooks takes the cash offset instead of AP.

Example 3. An open journal entry (JE) has an expense account on the first line (the source) and has AP on the second line (the target). When you run the CBBS report, QuickBooks includes the balance sheet target account in the report and so the AP amount is included. The offset is shown in the source account which is the expense account on the first line of the JE. When you pay the vendor and link the check to the JE, QuickBooks shows target in cash instead of AP.

Example 4. If you edit the JE in Example 3 and reverse the lines so that AP is on the first line and the expense account is on the second line, then the target account is not a balance sheet account and QuickBooks does not include it in the CBBS because it is not paid.

Example 5. Every bill for inventory items debits the inventory asset account and credits AP. Thus, creating a balance sheet account among its target accounts. Since these target accounts are included in the CBBS, the offsets are included in the source account, AP. When the bills are paid, the inventory shows in the CBBS, but the targets are included in cash. Similarly for invoices for inventory items. Each such invoice has at least one target account that is a balance sheet account which is included in the CBBS. The offset for these targets is the source account of the invoice, AR.

 A list of transactions that create cash basis AR and AP balances follows:

 AR Debit Balances:

  • An open invoice with sales tax if the preference is set to “As of invoice date (accrual basis).”
  • A check to a customer not linked to a credit memo.
  • An open Invoice or statement charge for an inventory item.
  • A JE debiting AR as the source account and crediting a balance sheet account as a target.
  • A JE debiting AR as a target account.
  • Transferring a credit from one job for a customer to another job for the same customer before the journal entries are linked to the credit memo for one job and the invoice for the other job.

  AR Credit Balances:

  • A payment from a customer not linked to an invoice.
  • A payment linked to an invoice dated in the future if the report date is between the two dates.
  • A credit memo to a customer not linked to an invoice or a refund check.
  • A deposit not linked to a payment or an invoice.
  • A JE crediting AR as the source account and a target is a balance sheet account.
  • A JE crediting AR as a target account (e.g., transferring a credit to another job).

AP Debit Balances:

  • A check or bill payment check not linked to a bill.
  • A bill payment check linked to a bill with a future date if the report date is between the two dates.
  • A JE debiting AP as the source acct and a target is a balance sheet account.
  • A JE debiting AP as a target account.
  • A credit card charge that relieves AP that is not linked to a bill.

AP Credit Balances:

  • A bill for an inventory item or to an asset account
  • A JE crediting AP as the source acct and a target is a balance sheet account.
  • A JE crediting AP as a target account.

 

 The root cause of AR and AP balances showing on the CBBS is because AR and AP transactions have been entered and are being reported on a cash basis. QuickBooks was not designed to be used in this way and reporting anomalies result.

 How to fix the problem

 You can use QuickBooks reports to find the transactions that are causing AR and AP balances to appear on the CBBS.

 Detailed Instructions

To identify the transactions that are causing the issue, run the following QuickBooks reports:

   Open Invoices Report:

1.     Choose Reports > Customers & Receivables > Open Invoices.

2.     Click the Date drop-down arrow and select the correct date.

3.     Click Modify report, Advanced, and then click As of Report Date.

The payments that appear on the report (included in the CBBS) have been received but not applied to an invoice.    

Unpaid Bills Report:

1.     Choose Reports > Vendors & Payables > Unpaid Bills Detail.

2.     Click the Date drop-down arrow and select the correct date.

3.     Click Modify report, Advanced, and then click As of Report Date.

The bill payment checks that appear on the report (included in the CBBS) have been entered but not applied to a bill.      

Customer Transaction Detail Report: each customer who has a non-zero subtotal is impacting your AR balance. To identify customer transactions that are causing an AR balance to show on your CBBS, run the following report:

1.     Choose Reports > Company & Financial > Balance Sheet Standard.

2.     Click Modify Report.

3.     On the Display tab, select Cash for Report Basis.

4.     Delete the From date, keep the To date, and click OK.

5.     To bring up the Transactions by Account report, double-click (QuickZoom) the AR amount.

6.     Click Modify Report.

7.     On the Display tab, delete the From date and keep the To date.

8.     Click Advanced, select the Open Balance / Aging Report Date option, and click OK.

9.     Select Customer in the Total by field.

10.   Click the Filters tab:

11.    

a.     In the Filter list, click Account.

b.     Click the Account drop-down arrow and select All Accounts Receivable.

c.     Select No for Include Split Detail.

d.     In the Filter list, select Paid Status, select Open, and then click OK.

e.     (Optional) Click Memorize to save this report to use again.

Vendor Transaction Detail Report: each vendor who has a non-zero subtotal is impacting the AP balance. To identify vendor transactions that are causing an AP balance to show on your CBBS, run the following report:

  1. Choose Reports > Company & Financial > Balance Sheet Standard
  2. Click Modify Report
  3. On the Display tab, select Cash for Report Basis. 
  4. Delete the From date, keep the To date, and click OK
  5. To bring up the Transactions by Account report, double-click (QuickZoom) the AP amount. 
  6. Click Modify Report
  7. On the Display tab, delete the From date and keep the To date. 
  8. Click Advanced, select the Open Balance / Aging Report Date option, and click OK
  9. Select Customer in the Total by field.  

As always, if you need help or want more information about this process, please call 760-722-6839 or visit http://tinyurl.com/ybg6fy2 and enter “CBBS” in the Additional Comments box and we will contact you.

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