Recall that when you create an invoice, QuickBooks records both the Revenue and Cost of Good Sold, but since you are on the Cash Method, Revenue is not shown your Profit & Loss report until you receive the check from your customer. So if you are using the Cash Method, you would expect there to be no Accounts Receivable, right? That is not always the case, especially if you have Inventory. When you ultimately sell the inventory, QuickBooks will record Revenue and Cost of Good Sold. It is not debited to an expense account because (a) it is an asset that you can sell for future benefits & (b) you record the expense to match the income. Likewise, when you purchase an inventory item, your Bill, Check or Credit Card charge will debit the item's Inventory Asset account and credit your Accounts Payable, Bank or Credit Card account. For example, you ship a customer on net 30 terms, Using the Accrual method, revenue would be recorded when the product ship, whereas in the Cash method, revenue is recorded when the customer pays after the 30 days.
With the Accrual method, you need to record revenue when you earn it. The Accrual accounting method is a bit more complicated. What's the difference? The Cash accounting method is very straightforward: When cash comes in the door, we record it as revenue & as cash goes out the door, we record it as an expense. If you have not received a payment for an invoice, a Cash-Basis report does not include the income A Cash-Basis report shows income income, only if you have received cash and expenses. An Accrual-Basis report shows income regardless of whether your customers have paid their invoices and expenses, regardless of whether you have paid all your billsĬash Basis is a bookkeeper method in which you regard income or expenses as occurring at the time you actually receive a payment of pay a bill. In Accrual accounting, the time when you enter a transaction and the time when you actually pay or receive cash, may be two separate events. The best way to begin this blog topic is to discuss what on earth are we talking about?Īccrual Basis is a bookkeeping method in which you regard income or expenses as occurring at the time you ship a product, render a service or receive a purchase.