@mmb3 -
Agree, GAAP accrual-basis accounting requires different entries than QB or OBO is setup to do, so it is more difficult to do accrual-basis entries, since the system tries to force you to automated cash entries. Assume by now you have found a workaround to record entries needed to accrue revenue per GAAP. Here are the entries as required, perhaps you can share here the workaround that you are now using?
Example:
On month-end date, like 04.30.20
- Debit AR Unbilled (Asset)
- Credit Revenue (Income)
This accrues revenue in current month P&L and temporary AR Unbilled on BS till billed.
On date invoice is sent to customer, like 05.05.20
- Debit AR Billed
- Credit AR Unbilled
This is the date billing actually occurs and the clock starts ticking on invoice due date.
On date customer payment is deposited, like 06.05.20
- Debit Cash (Bank in QB)
- Credit AR Billed
This removes invoice from AR Aging since paid. (Hope you found a way to shut-off Undeposited Funds).
Also agree, this is much easier to do in QBDT. Great to see someone who knows about AR Unbilled!!
However, it does seem there is some confusion here about what you are calling IRS "tax standard."
There is no such thing. The IRS does not and cannot dictate how you do your accounting on books.
They can only dictate what/how you put numbers on the income tax return forms, like 1120, K-1, etc.
As explained in my response further below:
ACCOUNTING can be done on CASH-BASIS or ACCRUAL-BASIS
TAX RETURNS can be done on CASH-BASIS or ACCRUAL-BASIS
These are two separate decisions made by the company that do not have to be the same, but helps a bit.
Here is what I have seen at the 90 companies I have provided help to:
Most small businesses do Cash-basis accounting and Cash-basis taxes.
Public companies and Govt contractors of all sizes must do Accrual-basis accounting, but can choose to do taxes on cash-basis or accrual basis. Company choice, but must be decided and done consistently.
They can change their mind and switch taxes from cash to accrual, but think must wait 5 years to change.
The reason some small companies do Accrual-basis accounting but Cash-basis taxes, is because they do not want to pay taxes on revenue accrued when they have not yet received the cash yet. Good reason.
When companies get larger, they usually move to Accrual-basis accounting and Accrual-basis for taxes. Have never heard of any company doing cash-basis accounting and accrual-basis taxes. No reason to.
The co-worker above, who tried to help, was partly correct. I am sure he heard somewhere but did not quite explain correctly.
@mmb3 wrote:
I would say QBO is built more from a tax standard than a true GAAP standard that could hold up to an external audit on its own without manual work-arounds. With any system, you have to make accruals, but QBO is a bit clunkier because they try to oversimplify through automation and the automation is hard to work around. For instance, in my practice, I need to accrue revenue for unbilled time. Just trying to figure out how to get that number into my financials in the correct spot (rolling up to AR) was extremely tricky and still doesn't really work well because it tries to force me to make a payment against the journal entry. I have had plenty of QB specialists not understand the concept of unbilled revenue and accrual accounting. Desktop doesn't have as much of a problem because it has more bells and whistles. Technically speaking, if you can make a journal entry in a system, you can get it to GAAP.
It may be easier to ask your coworker to give you an example and we can address it specifically.
