I'm trying to resolve a problem with the Cash Basis Balance Sheet showing an incorrectly inflated Accounts Receivable amount.
Frequently in this newsgroup we have seen messages about Cash Basis businesses showing an amount in Accounts Receivable on the Cash basis balance sheet.
We have determined that if you invoice an inventory item but have not yet received payment, the cost of the item is deducted from inventory and added to the A/R account until payment has been entered. Similar issues occur if you invoice an item you have not paid the vendor bill for.
These entries I understand and accept with no quarrel.
However, my situation includes a problem that I cannot resolve. It occurs when an inventory item is 'sold' with a sales price of $0.00. A thread exists in the QB support forums. Look under "Accounts Receivable and Customers" in the discussion titled "Cash Basis Business Questions". There has never been a satisfactory resolution to the issue. (Possibly because there seem to be many events that can cause the problem.) When producing a Cash Basis Balance Sheet, a dollar amount shows up under Accounts Receivable.
My accountant's first reaction was "Why an account receivable in cash basis?" After much research and discussion, we understood the concept of unpaid invoices containing inventory items. No problem there.
In a nutshell, if I 'sell' an inventory part with a non-zero cost but a selling price of zero (give it away), QB records it in the balance sheet A/R account in unbalanced form.
We perform warranty repair services for a number of equipment manufacturers. Several of the manufacturers send us parts at no cost for a specific repair, and we bill the repair back to them. We receive the part into inventory with a cost of zero, and invoice it back out with a price of zero. However, there may be other pieces of that item in stock that we paid for, and QB uses the average cost for the invoice transaction. So it sees a COGS greater than zero, and a sales price of zero. QB lists a debit for the average cost, but there is no offsetting credit. A similar event seems to happen if I damage a part and charge it off to scrap at zero price, or if I 'invoice' it at zero cost as a donation to a charitable organization..
To duplicate the problem: Start by printing a cash basis balance sheet and noting the A/R balance. (I find it helpful to display the Original Amount, Debit and Credit fields on all the following reports.) Then enter several invoices having inventory items that have a defined cost but price them at zero. You may also want to receive into inventory some items having zero cost but having the same item code as other inventory with a non-zero cost. Then invoice those items out with a zero sales price. Run a cash basis balance sheet and examine the A/R entry. It will probably have increased by the average cost of the items that were invoiced. Now receive a payment against those invoices.
I believe the items will still show up in the A/R report when they should not. Now filter the A/R report as described in KB ID# 122646. The total amount of open items listed in this report will be considerably less than the A/R amount in the balance sheet.
Export the A/R report and Filtered Open A/R report to an Excel worksheet, make a working copy of the full A/R report and sort it by the Original Amount field. Add up the values of the items having an Original Amount of zero, and it will be very close to the discrepancy between the open A/R items and the full A/R report.
This issue is causing major headaches with our tax preparations as it gives an incorrectly inflated valuation of A/R as inventory assets and results in the overpayment of taxes by several hundreds of dollars.
Since QB support has not yet come up with a fix for this, is there any way I can enter a ledger entry to credit the unbalanced debit?
(I would appreciate a cc: of any reply posts to nrpreston at yahoo dot com.)