QuickBooks Asia

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.

Let’s talk about terms

Both Invoice and Bill share the same Payment Terms list. From the Lists menu, select Customer & Supplier Profile List, and follow by the Terms List to open up the Terms List window.

Terms can be either ‘Standard’ or ‘Date Driven’. 

Net 30 (30 days) Net 60 (60 days) or Net 90 (90 days) payment terms are Standard terms that we usually give to customer or received from supplier. In the Terms list window, ‘1% 10 Net 30’ and ‘2% 10 Net 30’ are special default Terms created by QuickBooks Asia. Both are 30 days terms.  ‘1% 10 Net 30’ means 1% discount given if payment did within the ten days from the Bill date.

When using either ‘1% 10 Net 30’ or ‘2% 10 Net 30’ Payment Terms type in Bill, there will be an extra discount due date besides the ‘Terms’. Example: If Bill date is 1 June 2010, the discount date will be 11 June 2010 (10 days from the Bill Date; and the Bill due remaining as 1 July 2010 (thirty days from Bill date).

QuickBooks will not automatically deduct the Bill amount for you; it serves as a reminder. You have to physically calculate the discount amount and enter it into QuickBooks via a Journal if you make a payment within the ten days grace period.

First type of Date Driven Terms is ‘Net due before the x th day of the month’, example: if you set ‘Net due before the 5 th day of the month’ for a bill dated 7 June 2010, the Bill Due will be 5 July 2010 (that is fifth day of next following month). However, if your bill dated 2 June 2010, the Bill Due will be 5 June 2010 (fifth day of the current month).

Another type of Date Driven Terms is ‘Due the next month if issued within x days of due date. Example: if you set ‘Due the next month if issued within 10 days of due date’ on a Bill dated between 1 to 21 day of June 2010, the Bill Due will be 1 July 2010 (first day of next month). However, if you set the date between 22 June 2010 and 30 June 2010, the Bill Due will be 1 August 2010 (calculated backward from First day of next month).

Join my QuickBooks training class to have a better understanding of how QuickBooks can work for you.

How can I make QuickBooks work harder for me?

I had a client who is in a Childcare business; monthly, he has to create hundreds of invoice to his client for the monthly childcare fee of their child who stays in his centre. The recording of the monthly invoices have taken up too much of his time and often mistake can be make.

How QuickBooks can help?

We can use a memorized transaction feature in QuickBooks to memorize the invoices and set it up as a standing order (in US version it is call Automatically Enter).

For Example:

You have a client whose child is going to stays in your centre for the next 2 years (24 months). 

Upon creating the first invoice to your client, you can memorize it as a memorized invoice and set the option to Standing Order with the setting such as:

• How Often: Monthly
• Next Date: 01-04-2010 (Date of the next invoice)
• Number Remaining: 23 (24 months less the current invoice)

In the following month, 1 Apr 2010, once you launch QuickBooks and open up the company file, QuickBooks will prompt you to record the Standing Order.

Monthly, QuickBooks will automatically record the transactions until the Number Remaining is zero.

QuickBooks will ‘off load’ your monthly task in creating invoices to your client and you will have more time to focus on other operating stuff.

How can QuickBooks helps in managing my goods in both Bonded Warehouse and my own warehouse?

Bonded Warehouse – From Wikipedia http://en.wikipedia.org/wiki/Bonded_warehouse ... All goods deposited in a warehouse, without payment of duty on the first importation, upon being entered for home consumption, are chargeable with existing duties on like goods under any customs acts in force at the time of passing such entry …

A client of mine requires using QuickBooks for their Wine Business. In Wine business, they will import Wines and store it in a Bonded Warehouse, as and when they needed the wine, they will transfer out from the Bonded Warehouse to their own warehouse and thereafter selling off to their customer.

So, how can QuickBooks helps my client in his Wine trading business?

Example:

Wine name: Wine A, 75ml with 12.5% of alcohol

Raw cost: $20.00

Duty: $6.35

Selling price: $40.00

Base on the above example, how to enter it in QuickBooks?

When Bill received from supplier, the bill consists of only the raw cost of the wine (i.e. $20.00). Goods will be store in the Bonded Warehouse, thus, duty at this stage was not paid.

The double entry for this transaction will be:

    Debit Bonded Warehouse (Other Current Assets type of account): $20.00

Credit Accounts Payable account: $20.00

From the Balance Sheet, you will be able to see the inventory value of $20.00 for inventory at the Bonded Warehouse.

Next, you should create an Inventory Assembly item to combine the raw cost of the item with the duty. I will prefer adding the duty as an Other Charge Item and link it to the COGS account (Cost of Goods Sold account).I will create a new Inventory Asset account such as ‘Inventory Assets – Own Warehouse’, then, link the Assembly’s inventory asset account to this newly created Inventory Asset account. 

When you require drawing out the stock from the Bonded Warehouse, you should do a Build Assemblies to reduce the stock in the Bonded Warehouse and increase the stock in your own Warehouse.

The double entry for the Build Assemblies will be:

    Debit Own Warehouse (Other Current Asset type of account): 26.35

Credit Bonded Warehouse (Other Current Asset type of account): 20.00

Credit Duty (COGS): $6.35

When the Duty paid to the Custom, the double entry will be:

    Debit Duty account (COGS): $6.35

Credit Bank: $6.35

You can record the payment of the Duty via a Write Cheque function in QuickBooks.

The Duty (Cost of Goods Sold account) was zero off; this was because the cost of the duty had transferred into the cost of the item during Build Assemblies process; and was added to the Inventory Assets account (that is, Inventory Asset – Own Warehouse account).

When you create an invoice to your customer (For the Assembly item), the double entry of the invoice will be:

    Debit Accounts Receivable: $40.00

Credit Sales account $40.00

    Debit Cost of goods sold account $26.35

Credit Own Warehouse account (Other Current Assets account) $26.35

In this stage, the Cost of Goods Sold will increase by $26.35 and Inventory Asset – Own Warehouse account will reduced by $26.35.

Usually, the Bonded Warehouse operator will assign a Lot number for your storage, to capture the Lot number you may consider to enter the Lot number in the description field on both the Invoice and Bill recorded. This is to help in searching or matching of Lot number at the later stage.

In some cases, you may consider to incorporate the Lot number together with the item code. However, if this were to be the case, you have to consider the maximum number of stock item (that is, maximum 14,500 items for QuickBooks Premier and below) in the item list. 

The above is a solution for small trader that requires managing the goods in both the Bonded Warehouse and their own warehouse. You may contact our sales, if you like to engage us as a QuickBooks consultant for your business.