Accrual vs. Cash Basis
In QuickBooks financial reporting, you are being giving two options; Accrual or Cash basis.
Which reporting basis should you choose?
Accrual basis reporting will present an income or expenses in Profit and Loss report at the moment when you record an income (invoice) or expenses (Bill).
Cash basis reporting will present an income or expenses in Profit and Loss report only when payment received from the sale or payment made for an expense.
On 02 September 2010, you record an invoice for a sale amount of $1,000.00 in QuickBooks. You gave your customer 30 days payment term. Then, your customer made a payment to you on 20 September 2010.
If your reporting basis is based on Accrual basis, then on 02 September 2010, your Profit and Loss Report will show an income of $1,000.00. However, if your reporting is based on Cash basis, then your Profit and Loss report on 02 September 2010 will show nothing.
If you are using Cash basis reporting, you will realized your income on 20 September 2010. That is, only when customer made payment to you. Although, in General Ledger, you can see the transaction in Sales account; QuickBooks ‘hide’ the Sale value from the Profit and Loss report.
User can go to the Reports & Graph Preferences to change the reporting basis from Accrual to Cash basis. User who uses Cash basis has to be extra careful if you are GST register trader. In the Tax Preferences you have an option to use Accrual basis or Cash basis for Tax reporting.
You should check with your Accountant on the type of reporting basis that you should be using.