Why does my accounts receivable have a balance when i run my reports on a cash basis

  • 1
  • Question
  • Updated 4 years ago
  • Answered
For some reason, my accounts receivable account has a debit balance of $39000 when I run the reports on a cash basis. It seems tax invoices are posting to this account and I acnnot work out why.
Photo of Julian Sellings

Julian Sellings

  • 110 Points 100 badge 2x thumb

Posted 5 years ago

  • 1
Photo of Kevin V. Russell

Kevin V. Russell, Accredited Partner

  • 5,580 Points 5k badge 2x thumb
Ar is meaningless if you report on a cash basis. Get your accountant to explain it to you. Cheers
Photo of Julian Sellings

Julian Sellings

  • 110 Points 100 badge 2x thumb
I understand accounts receivable is an accruals account, and that is kind of my problem.  The account shouldn't have a balance on a cash basis but does.  I cannot work out why Invoices are posting to the account on a cash basis.
Photo of Kevin Silberberg

Kevin Silberberg, Accredited Partner

  • 2,160 Points 2k badge 2x thumb
Tax Invoices are posted to Accounts Receivable (AR) because AR reports what the company's Customers owe it.  Similarly, bills (Tax Invoices) received from Suppliers are posted to Accounts Payable (AP) because AP reports what the company owes to its Suppliers.  Julian, when you say you "run the reports on a cash basis", do you mean your Profit and Loss?  In that case, the P&L will report income received (Tax Invoices paid by your Customers) and bills issued by Suppliers that have been paid.  AP and AR are Balance Sheet accounts and will record and report their respective balances irrespective of whether you run your P&L reports on a cash or accrual basis.
Photo of Julian Sellings

Julian Sellings

  • 110 Points 100 badge 2x thumb
Hi Steven, it is the Balance Sheet that I am having problems with.  On a cash basis, both my AR & AP have balances, which isn't right.  Upon further investigation I think it might have something to do with the Inventory asset account, but cannot pinpoint the problem.
Photo of Lupton

Lupton

  • 244 Points 100 badge 2x thumb
Does your A/R ageing summary equal your Balance Sheet run on an Accrual Basis ?
Photo of Julian Sellings

Julian Sellings

  • 110 Points 100 badge 2x thumb
It does, as does my A/P Ageing Summary.  I think I've narrowed the problem down to be something to do with the inventory Asset account.
Photo of Sally McIntosh, Accredited Consultant

Sally McIntosh, Accredited Consultant, Accredited Partner

  • 13,102 Points 10k badge 2x thumb

Hi Julian,

The AR and AP balances on a Cash Balance Sheet are always wrong. You should never run a Cash Balance Sheet due to this reason.

Just run it on Accrual and if correct, don't worry!

Kind regards,

Sally McIntosh (sally@samsolutions.com.au)

Photo of Julian Sellings

Julian Sellings

  • 110 Points 100 badge 2x thumb
Thanks Sally.  The only problem with this is it increases my clients profit by $100,000, and adds an extra $30000 to their tax bill.
Photo of Kelly Day, Accredited Partner

Kelly Day, Accredited Partner, Accredited Partner

  • 2,064 Points 2k badge 2x thumb
The reason A/R &/or A/P will show on a Cash Basis Balance Sheet is when the items contained in the Tax Invoice or Supplier Bills or Cheques are allocated to Balance Sheet Accounts as well - in your scenario, Inventory Asset - they're not wrong, just reflecting that the transactions are not operating income or expenses and linked to asset or liability accounts instead.
Photo of Robin

Robin

  • 1,678 Points 1k badge 2x thumb

Hello,

I also believe that QuickBooks is behaving in an unexpected way in regards to “Cash Basis” reports vs “Accrual Basis”.  In my case, the issue happens when refunding money to customers.

The answers given in this forum just don’t make sense to me. I wrote to Reckon and they were no help either. They just said “Ask your Accountant”. Bit wrong if you ask me as it is Reckon’s Software, surely they know why it behaves in the way that it does?

Here is my issue and any assistance in understanding is appreciated. I am having trouble understanding why there is there an amount under “Accounts Receivable” when I run my Balance Sheet (Cash Basis) and yet the Balance Sheet (Accrual basis) has NO money owing to us.

 

I know that definitely no customers owe us any money and yet, on the balance Sheet, there is a large amount of money growing year by year.

 

In our situation;

·         We Direct Debit money from many, (over 100), customers’ accounts once per fortnight using an uploaded ABA file to our Bank.

·         The single Lump sum $ amount is direct deposited in to our Bank Account by the Bank. This is recorded in QuickBooks as a single “Cash Sale”

·         A few days later 3 or 4 of the Direct Debits can ‘fail’ due to insufficient funds in the customers’ accounts.

·         When this happens a “lump Sum” debit from our bank Account is taken by the bank directly from our bank Account.

·         This lump sum can consist of 3 or 4 individual customers all rolled in to the one $ amount.

 The way that we handle a Failed Direct Debit is as follows:

1.       We DD all customers, (over 100 of them), for say $30,000

2.       We enter in to Quick Book the full $30,000 as a single “Cash Sale” (even though there are over 100 customers) and this amount is deposited to our account by Westpac

3.       A few days later (say $600) is withdrawn by Westpac directly from our Bank account as some Customers DD failed

4.       We then reverse the individual Customer DD by giving a ‘Refund’. This is a feature of QuickBooks and the accounts all now balance.

5.       We then accept the “Write Refund” cheque Prompt and our Bank account now balances perfectly.

6.       It appears that this process creates the abovementioned “Accounts Receivable” amount Yet we have no actual money owed to us as at a later date we take the failed DD amount and we then have no customers owing any money to us.

Photo of Kelly Day, Accredited Partner

Kelly Day, Accredited Partner, Accredited Partner

  • 2,064 Points 2k badge 2x thumb
Your process looks fine to me - usually in these cases, I find it to be a dating issue - if there is a date difference between the adjustment note and the refund cheque that may create your report results.
Photo of Robin

Robin

  • 1,678 Points 1k badge 2x thumb
Hi, No the dates are exactly the same so it must be something else?
Photo of Kelly Day, Accredited Partner

Kelly Day, Accredited Partner, Accredited Partner

  • 2,064 Points 2k badge 2x thumb
OK, What account is the item linked to that you use in the Adjustment Note??
Wow, if you still have the issues, and not able to get answers in this forum, we have this direct debit solution exactly what you doing for a QuicK Books client they process 4000 direct debits  using our solution , all invoices are automatically raised and paid in one bulk , and you raise .aba file like you are doing, and this client is a part of AMP group , does not have issues at all. Manage rejected payments and refund all automated no manual entry is required. Feel free to talk  to us.
Photo of John G

John G, Information Support Analyst

  • 27,510 Points 20k badge 2x thumb
Hi Julian,

Thanks for asking the Reckon Community and thanks to everyone who has contributed to this thread.

The A/R and A/P appearing on a cash-basis Balance Sheet is an unfortunate by-product of inventory, cash-basis reporting, double entry bookkeeping and QuickBooks holding data on an accrual basis.

The issue has been around since Day 1 of QuickBooks and if you google the issue you will see hundreds of posts about it over the years.

Let me try to explain it.

When you purchase inventory (inventory parts) it is stored in the Balance Sheet account Inventory Assets.  When this inventory is sold, the cost of the items are transferred to the Profit & Loss account COGS.

When you call up a report on a cash basis, Accounts Business has to modify it - check that the invoice/bill has been paid and make a couple of other changes needed for the report.  That's why cash basis reports take so much longer to produce than accrual basis reports.

Now if a Sale/Purchase has not been paid then it is not included in the cash-basis report.  However the inventory associated with these transactions have already moved out/into the Inventory Account and we cannot simply pretend the transaction did not happen as the inventory has to be accounted for.  

Although the Sales/Purchase side of the transaction can be "forgotten", according to the needs of Double Entry Bookkeeping, the COGS has to go somewhere to balance the movement out of the Inventory Asset account.  The designers, for better or for worse, decided to leave that COGS value into the A/R and A/P account. 

So, if your file contains no errors, then the value of the A/R on a cash-basis Balance Sheet should equal the value of Inventory sold (at its average cost) on Sales not yet paid.  Similarly for A/P.

Run the same report on an accrual basis and there should be no discrpancies.

Hope this explains what's going on.

BTW, I thought Australian Accounting Standards demand that reports be done on an accrual basis.  Is that still the case? Are there any exceptions?


regards,
John
(Edited)
Photo of Kevin Silberberg

Kevin Silberberg, Accredited Partner

  • 2,160 Points 2k badge 2x thumb
I think you are correct about reports on an accrual basis being a standard, John.  I have never been able to understand why people prefer reports on a cash basis.  Often such persons can neglect to monitor their liabilities such as GST and PAYG withholding in particular.  It is similarly important to monitor your debtors ledger and to chase up monies owed.  Cash flow is important of course but it is not the whole story.
Photo of Trevor Watson

Trevor Watson

  • 1,478 Points 1k badge 2x thumb
Thanks John for the clear explanation. I've noticed this too, but never understood why, now I do thanks to your explanation.
Photo of John G

John G, Information Support Analyst

  • 27,510 Points 20k badge 2x thumb
Hi Robin,

Thanks for asking the Reckon Community.  

If there is no sensible answer then rebuild your file.  Examine the QBWin.log files for the error.  Verify the file - any errors found? And run the reports again.

Otherwise, some further information on the way you process this transaction will be helpful.  Sorry if these questions sound somewhat simple but often the problem lies in the fine detail.  

You said that you record the DD as a Cash Sale.  I presume you are using the form Sales Receipt to the customer "Cash Sales".  Is this correct?

What item are you using on the sale?  Is it an Inventory Party type item?
Do you sell inventory parts to other clients or not by DD?

Do you ever record this DD against a customer account and how do you do it?

When a particular customer payment bounces you give a REfund to that customer or to "Cash Sales"? And then select the Write Cheque option.  

How much is the Accounts Receivable amount that should not be there? The DD amount? the Bounced amount?  DD minus Bounced amount? something else?


I hope the "Brains Trust" here can get an answer for you.


regards,
John
Photo of Robin

Robin

  • 1,678 Points 1k badge 2x thumb
Hi John,
We are a child care Centre. Every fortnight we Bulk DD over 100 families their child care fees.
This is recorded as one "Cash Sale" and appears on our bank statement as one sale as well. (ABA File Upload).

A few days later a few of the DD may fail and the bank credits back to our account a single sum that represents the several transactions in one $ amount.

I then follow the normal refund process as I described in my earlier post.

This is all very normal and I am advised the correct way to do it.

As I said, Accrual basis reporting the amounts under receivable is $0 but under Cash Basis it is slowly increasing over time.

I suppose I should stop using Cash basis reporting but I understand Cash better than Accruals.

Hope that helps.

Robin
Photo of Robin

Robin

  • 1,678 Points 1k badge 2x thumb
I also note that when the refund action is completed I am asked to write a refund cheque - this by default uses the "Accounts Receivable" - should I tell it to use something else?
Photo of Sally McIntosh, Accredited Consultant

Sally McIntosh, Accredited Consultant, Accredited Partner

  • 13,102 Points 10k badge 2x thumb

Hi Robin,

No a refund cheque to a customer is correct to use Accounts Receivable.

Kind regards,

Sally McIntosh (Sally@samsolutions.com.au)

Photo of Kelly Day, Accredited Partner

Kelly Day, Accredited Partner, Accredited Partner

  • 2,064 Points 2k badge 2x thumb
Hi Robin,

Please check which account the item that you use in the adjustment note is linked to - your answer may lie there
Photo of Graham Boast

Graham Boast, Accredited Partner

  • 11,704 Points 10k badge 2x thumb
Hi Robin

From your posts, I gather that you use a separate program to manage the child care fees and the invoicing and management of the bounced DDs.

Let me just reflect on your process; the bounced DDs are processed as if you are refunding an overpayment to the customer, when in reality the customer still owes you money...

Although your process achieves the right result, I think the means are so misleading they do not justify the end.

An alternative way of doing this would be as a journal entry as follows,


This method also steers clear of Accounts Receivable.

Graham Boast
Reckon Accredited Consultant
graham@reckonhelp.com.au
www.reckonhelp.com.au/remotesupport.htm
 
Photo of Robin

Robin

  • 1,678 Points 1k badge 2x thumb
Hi Graham, I tried your suggestion and it is the perfect answer for me. I no longer have the ongoing Accounts receivable issue in either Accrual or Cash basis reporting. Excellent answer.
Photo of Reynaldo Rivas

Reynaldo Rivas

  • 70 Points
Great Article. Thanks for the info, super helpful. Does anyone know where I can find a blank Sales Form to fill out? 

This conversation is no longer open for comments or replies.