A/R in cash basis reports?

This is a subject of much discussion here and on the QB messages forums.

Keep in mind that QB actually handles all transactions in accrual mode, and makes adjustments to create reports for cash basis. Its native mode is NOT cash basis.

If you carry an inventory, you have probably created invoices for sales but have not yet collected payment for those invoices. If so, QB removes the item from inventory and holds it in the A/R account until payment is received. When the invoice is paid, the inventory item is then removed from A/R and charged to COGS.

A similar sequence occurs for inventory you have purchased but not yet paid for, especially if you have already invoiced it.

One word of warning: DONT invoice an inventory item with a zero sales price. We have found that QB will never charge it to COGS and it remains in A/R forever. We haven't found an acceptable fix yet.

Go to Google Groups and search for "Inflated A/R on cash basis balance sheet" in this newsgroup for the current thread. Also search for the phrases "Cash Basis" "Balance Sheet" "Accounts receivable" to find all the threads.

There are those on this group who will tell you that if you carry an inventory, you MUST use accrual methods. However, IRS rules permit cash basis methods for sole proprietors and S-corps with annual gross receipts less than $5 million. See

-Neil

Because you have inventory.