Biff doesn’t pay Jim for the widgets until July 15 th. Jim completes the work and ships the widgets-and thus earns the revenue-on June 1 st. Use the Customers menu’s Create Invoices command when the moment you earn the revenue and the moment you collect payment are distinct.Įxample: Jim agrees to manufacture and sell Biff a crate of widgets for $1,000. Accounts Payable tally the expenses a firm has incurred, but has not yet paid. Two types of accounts exist in accrual basis accounting which don’t exist in cash basis accounting:Īccounts Receivable tally the revenues a firm has earned, but has not yet collected payment on. I summarize the key differences in the little table below:
You want to understand both approaches, which means you need to “get” what’s different about cash basis accounting as compared to accrual basis accounting. QuickBooks, and general accounting conventions, provide two different approaches to measuring revenue. If you read that, some of this material will look a little familiar.
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Note: I did a post a couple of weeks ago about how to record expenses in QuickBooks. But first, we need to start with some background information on cash basis versus accrual basis accounting so this all makes sense. I’ll explain when to use the Create Invoices feature versus the Enter Sales Receipts feature, how those features are different, and why they exist. This short blog post explains how to record your business’ revenue in QuickBooks.
Setting Low Salaries for S Corporations.
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