Reporting

Understanding Accrual vs. Cash Basis Reporting

QuickBooks Online is built on an accrual accounting engine. This means it records transactions when they occur (sending an invoice or receiving a bill) rather than when money changes hands. However, we offer reporting flexibility to view your data in different ways.

• Accrual Basis: Income is recorded when the invoice is sent, and expenses are recorded when the bill is entered.
• Cash Basis: Income is recorded only when the customer pays, and expenses are recorded only when you pay the vendor.
• Modified Cash Basis: This is a hybrid method often used by organizations that do not typically carry Accounts Receivable, Accounts Payable, or inventory. In QuickBooks, if you run a Cash Basis report but see open invoices or unpaid bills, it is likely functioning as a modified cash basis report. In this view, an invoice records income only when payment is received (or partially received), and Cost of Goods Sold (COGS) for inventory items posts only when the invoice is paid.

If you run a Cash Basis Profit and Loss report and see invoices listed rather than payments received, verify your report settings. However, remember that QuickBooks Online is fundamentally an accrual-based package that allows for cash or modified cash basis reporting.

Managing Payroll Schedules and Notices

If you receive an “Overdue CREATE PAYCHECKS” notice, it usually means the next payroll date in your schedule needs adjustment. To resolve this:

1. Go to Settings (the gear icon) and select Payroll Settings.
2. Under the Payroll section, look for Payroll Schedule (or similar options depending on your payroll service).
3. Edit your schedule and update the “Next payroll date” to the correct future date.

This updates the system so that reminders trigger at the appropriate time.

Troubleshooting W-2s and Third-Party Sick Pay

If your W-2 forms show Third-Party Sick Pay (TPSP) included in Federal taxable income but not in State taxable income, the issue is usually related to how the payments were entered.

• Check Adjustments: If the TPSP was entered as a payroll adjustment, the state tax settings may not have been included in that adjustment entry.
• Review Liability Setup: Ensure the Third-Party Sick Pay liability account is set up correctly to track both federal and state tax implications.

We recommend reviewing the specific payroll adjustment transaction to ensure state taxes were calculated and withheld according to your state’s requirements for TPSP.

Working with 1099s and Independent Contractors

If an independent contractor is not appearing on your 1099 vendor list, verify the following:

• Payment Method: You do not report payments made via credit card, debit card, or third-party settlement networks (like PayPal) on Form 1099-NEC. The payment processor is responsible for reporting those transactions on Form 1099-K. QuickBooks automatically excludes these transactions from your 1099 reporting.
• Vendor Setup: Ensure the vendor is marked as eligible for 1099 in the vendor profile and that the threshold amount has been met.

Handling Non-Profit Restricted Funds

For non-profits that do not use class tracking, managing restricted funds (such as a Building Fund) requires careful equity management to reflect the movement between restricted and unrestricted net assets.

When you spend money from a general checking account for a specific purpose (e.g., repairs) that was partially funded by current donations and partially by reserved funds:

1. Pay the Bill: Record the expense payment from your Bank account as usual.
2. Rebalance Equity: To reflect that reserved funds were utilized, create a journal entry to move equity.
   • Debit: Restricted Net Assets (to decrease the restricted equity).
   • Credit: Unrestricted Net Assets (to offset the entry).

This entry “rebalances” your equity to show that fewer funds are now restricted, accurately representing the use of the reserve on your Balance Sheet without needing to use class tracking.

Accounting for Loan Interest and Prepayments

On a cash basis, you can only deduct income that you actually receive.

• Interest Income: If a borrower makes an early principal payment that shortens the loan term, you cannot deduct the future interest income you expected to receive. You may only claim the interest income as it is paid.
• Prepayments: While prepayment reduces the total interest you will earn over the life of the loan, you cannot claim a deduction for interest that has not yet been paid to you.

Reversing Journal Entries

QuickBooks Online does not have a “One Click” reverse function for journal entries. To reverse a journal entry:

1. Open the specific journal entry you wish to reverse.
2. Select More at the bottom of the screen.
3. Choose Reverse.
4. QuickBooks will create a new entry dated the first day of the following fiscal period (unless you change the date) with debits and credits swapped.

If you are using a specific version of QuickBooks Desktop (referenced in older queries as Pro 2015), note that this feature is specific to the Online version and newer Desktop versions; older Desktop versions often require manual entry of a reversing entry.