QuickBooks Tip: Cash to Accrual Accounting

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Understanding cash vs. accrual accounting and what is included under each basis can be difficult for business owners – and even for some accountants! With one of its best features, QuickBooks makes it easier to convert income and expenses from cash to accrual and back again.  Business owners have the ability to run reports on either basis simply by customizing the report.

The two main financial reports are profit and loss and balance sheet.  The profit and loss report reflects the business income and expenses for a specific period of time.  The balance sheet report reflects the information about what you own, what you owe and what you have retained in equity as of a certain date.

Understanding cash vs. accrual accounting

Regardless of what basis you use to run your business or report your taxes, it’s helpful to analyze your company’s performance from different angles.  Income on the accrual basis includes all bills sent to your customers, regardless of whether or not you have received payment.  Income on the cash basis only includes income that your customers have paid to you. Expenses on the accrual basis include everything you owe, regardless of whether or not you have sent a payment.  Expenses on the cash basis include only the expenses that you have already paid.

As a business owner, it is important to track your income and expenses in order to break even.  This is best determined on the accrual basis.  You may have cash in the bank because you haven’t paid any bills, but that doesn’t mean that you have a profit for the month.

In order to get good accrual basis reports, you need to use the accounts receivable and accounts payable modules consistently and effectively.  In accounts receivable, you need to enter invoices and receive payments.  Use accounts payable to enter and pay your bills.

How to change report preferences in QuickBooks

When you originally set up your QuickBooks file, you set your reporting preference to cash or accrual.  You can easily change your reports to the opposite basis by following these steps:

  1. Select your report.
  2. Click “modify report” to open the modify report dialog box.
  3. Select “display” tab and click “cash” or “accrual” in the report basis section.
  4. Apply the change.

QuickBooks converts accrual to cash reports by removing the unreceived income and the unpaid expenses from the report.  However, there are a few nuances that can cause the cash basis report to be inaccurate.  If one balance sheet account (e.g., inventory) is linked to another balance sheet account (e.g., accounts payable), QuickBooks won’t remove either item, allowing accounts payable inventory to appear on a cash basis report. Additional accounts that won’t be removed include unpaid payroll taxes, credit card liabilities and sales tax payable.

Despite these pitfalls, the overall conversion process works well, and it is one of the best QuickBooks features to help business owners assess performance.


Lisa Kahn Little, CPA, is a Entrepreneurial Services Associate Principal at Kaufman Rossin, one of the Top 100 CPA and advisory firms in the U.S.

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