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 Have it Both Ways - Cash and 
 Accrual Accounting!

Whether you are on a cash or accrual basis for income tax purposes, QuickBooks® accounting software gives you the flexibility to create your company's financial statements from both perspectives. The question is: What information will be on cash vs. accrual reports and what is the benefit of running both?

 Accrual Basis Accounting

In the accrual method, you record income and expense at the time a transaction occurs. For example, when a part is shipped, a service is performed, or a job is completed. As bills are entered into accounts payable and invoices are recorded in accounts receivable, the net revenue is affected, regardless of whether the money is actually received from customers or paid to vendors. Running reports on an accrual basis matches expenses to the associated revenue, providing a clear financial picture.

 Cash Basis Accounting

For tax purposes, most small businesses opt for the cash basis of accounting in order to minimize the tax liability on monies not yet received from customers. Reporting on a cash basis is directly related to the ebb and flow of money. When money is received, it is picked up as income and when it is spent, it is recognized as an expense. To accelerate expenses at year-end, an accrual basis company needs only to record vendor purchases by entering a bill. A cash basis company must actually pay the bill in order to capture the expense.

 Cash vs. Accrual Reporting in QuickBooks

In QuickBooks, you can manage your business on an accrual basis, then for income tax purposes, switch the reports to a cash basis. Selecting a reporting preference in QuickBooks will only affect summary reports. These reports include:

  • Profit and Loss
  • Balance Sheet
  • Trial Balance
  • Reports with "Summary" in the title (except 1099 reports, which can only be displayed on a cash basis).

On the other hand, reports that list individual transactions always default to an accrual basis. Regardless of the reporting preference selected, you can temporarily switch the reporting method in the "Modify Report" window.

 Effects of Credit Card Purchases on Cash Basis Reports

For income tax purposes, it is acceptable to recognize credit card purchases on the date of purchase, regardless of the timing of payment of the credit card liability. QuickBooks handles these purchases in a similar fashion. Therefore, credit card purchases and the offsetting expenses are not reversed by QuickBooks on cash based reports.

QuickBooks CAN! ...Help you gain and maintain financial control of your small business. QuickBooks Pro Advisors Lisa Furr and Adam Cusumano will present the next quarterly seminar that will help you get the most from your QuickBooks software. Click here for more information and to register before Sept. 6 to take advantage of our $25 earlybird registration fee.

Be proactive! Contact Lisa or Adam today so they can help you plan for tomorrow's tax liability. Call 717-757-6999 or 800-745-8233 or email by using the form below.


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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.

IRS Circular 230 Notice: To ensure compliance with requirements imposed by the IRS, we inform you that any US tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code.

Securities and advisory services offered through Geneos Wealth Management, Inc. Member FINRA/SIPC. Geneos Wealth Management, Inc is not affiliated with Stambaugh Ness.