I don't disagree with you; you're probably right about all of what you write. I'll just comment on the things I know about...

RE: The tax code is clear that cash basis taxpayers must include all amounts received as gross income in the taxable year in which they are actually or constructively received (Treasury Reg. §1.451-1). This includes advance payments on contracts regardless of refundability.

QuickBooks Desktop doesn't do that.

With QB Desktop cash basis reporting, prepayment checks applied A/P Bills and customer prepayments applied to A/R Invoices are not recognized until the Bill or Invoice date.

Also, any unapplied amounts for both A/R and A/P payments will not show up on a cash basis P&L - ever.

Additionally, transaction that don't involve any cash can create cash basis events. For example, if you include both sales of new items and the return of an item on an invoice, that will create a cash basis event on the invoice date - even when no payment is received.

RE: Cash basis income should show as of the payment date and will be if it’s recorded as a payment receipt or the retainer is mapped to an income account and the payment is received on that invoice.

QB won't do that.

RE: That’s true of accrual basis. Cash basis is not concerned with when income is earned, it’s only concerned with when it’s received.

Yea. But how do you know that cash received on deposit for some future job will become income until it's applied to something - like an invoice - in the future? How do you know if the money is "received as gross income"?

It seems that some businesses know it will be income, some won't be sure, and some will know it is not income - even before it is applied. For example, if the eventual invoice includes sales taxes, other taxes, and other licensing fees or permits, which are paid for and billed to the customer, that's not income. Those fees might routinely make up 20 - 30% of the eventual sale, depending. As I think about this, the prepayment itself may be made to secure the permits and pay other fees. In this case, I expect, the business will know that the deposit on account is not "received as gross income".

RE: Agreed, but on cash basis it should be recorded in such a manner that QB reports the prepayment as income when received and the remainder of the final invoice as income when received.

With QB, that will only happen if the initial invoice and the first payment are on the same date, or the payment is dated after the invoice.

Maybe then using QB's cash basis reports for tax purposes isn't the best idea, at least if these data cases create a material difference across tax years.