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  #1  
Old 11-03-2016, 07:36 PM
gpierce9 gpierce9 is offline
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A/P in cash basis balance sheet

I know accrual basis acctg however not so much cash basis. In cash basis, I understand why one does not use A/R. But I am confused on A/P. Articles on other sites imply to me that you do not use an A/P account.

Can you tell me more about A/P in cash basis?

I am looking at my Home Depot card. Say for example, that I buy $8,000 of 10 items this month. When I get the statement, I want to post the 10 items to say 3 expense accounts, each with a sub account for 2 buildings. I use QBooks.
Thank you for ideas. Glen
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  #2  
Old 11-04-2016, 04:20 AM
Rustler Rustler is offline
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Not sure how much help this will be, but

If you have or use a/p, a/r, credit cards then QB reports on what is actually a modified cash basis. True cash basis would use none of those.

As an example, if I enter a bill for inventory, the item is stocked with cost. When I sell it the cost posts to COGS. BUT in cash basis, the cost would only post to cogs when the bill is paid, the sales income would post regardless.
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  #3  
Old 11-04-2016, 07:44 AM
gpierce9 gpierce9 is offline
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Rustler - thanks for the comment. I thought like you, this is what occurs. It looks like a cash basis does not want A/R or A/P like you said. I was using a current liability account called Credit Card A/P. In a sense, a "loan" from Home Depot. I am not sure if that is okay for a cash basis tax balance sheet form.
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  #4  
Old 11-04-2016, 10:11 AM
gpierce9 gpierce9 is offline
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My friend asked me today if his Home Depot credit card is considered Accts Payable. I think it is. right?

As to his long term bank loans, i wonder why they are allowed on a cash basis balance sheet but not accounts payable like the home depot account?
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  #5  
Old 11-05-2016, 04:35 AM
Rustler Rustler is offline
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I would enter the home depot CC as a CC type account, it makes using it easier as well as reconciliations.

I have a feeling it is due to the nature of the debt, a loan is a given amount for a set period of time, but I am guessing here
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  #6  
Old 11-07-2016, 09:01 PM
gpierce9 gpierce9 is offline
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thanks

I did not realize there is an account choice of cc card. i will use it. thanks.

i thought it was like an accts payable. I guess not.

I drove 30 miles to Trenton NJ today to both the IRS and the NJ Income tax offices and asked this question about can I use a home depot credit card payable in my cash basis balance sheet. They would not tell me. They said they do not advise on accounting techniques. They said to find a tax accountant.

I wonder how the IRS knows how to check our balance sheets?
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  #7  
Old 11-22-2016, 04:03 PM
Lorin Browning Lorin Browning is offline
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IRS checks balance sheets with an audit.
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  #8  
Old 11-22-2016, 05:32 PM
gpierce9 gpierce9 is offline
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Balance sheet lines for a cash basis

Hi, thanks. I am meeting tomorrow with my buddy to complete his balance sheet for 2016. We are still confused on the line items for a cash basis. His sales are only $129,000 or so for his two small apartment buildings.

I wish he went to accrual basis.

I found a reference on cash basis that said not to use fixed assets or bank loans. so now we are confused again. Seems like a cash basis would have few balance sheet lines. I wish there were cash basis samples.
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  #9  
Old 11-23-2016, 03:04 PM
Lorin Browning Lorin Browning is offline
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The following which can be found at http://www.accountingtools.com/quest...nce-sheet.html is an excellent discussion of the differences between cash basis, hybrid basis (modified cash basis) and accrual basis. For tax purposes and for bank, use the modified cash basis if you are not going to use accrual basis. Notice emphasis added to quoted text in first sentence of last paragraph.

What are the contents of a cash basis balance sheet?


Under the cash basis of accounting, transactions are only recorded when there is a related change in cash. This means that there are no accounts receivable or accounts payable to record on the balance sheet, since they are not noticed until such time as they are paid by customers or paid by the company, respectively. The following bullet points discuss the accounting methodologies under which different types of line items are included in the cash basis balance sheet.

The methodologies noted are:
  • Cash basis accounting. Record transactions only when there is a change in cash.
  • Modified cash basis accounting. The same as the cash basis, except that long-term assets and liabilities are included in the balance sheet.
  • Accrual basis accounting. Records revenues and expenses as they are earned or incurred, irrespective of changes in cash.

The balance sheet contents under the various accounting methodologies are:
  • Cash and investments. Contains the same information under cash basis, modified cash basis, and accrual basis accounting.
  • Prepaid expenses. Not used for the cash basis or modified cash basis, since these items are charged to expense. Used under the accrual basis.
  • Accounts receivable. Not used for the cash basis or modified cash basis, since no transaction is considered to have occurred until the customer pays. Used under the accrual basis.
  • Inventory. Not used for the cash basis or the modified cash basis, since these purchases are charged directly to expense; however, many cash basis companies prefer to include it. Used under the accrual basis.
  • Fixed assets. Not used for the cash basis, but is used under the modified cash basis. Also used under the accrual basis.
  • Accounts payable. Not used under the cash basis or modified cash basis, since no transaction is considered to have occurred until the company pays its suppliers. Used under the accrual basis.
  • Accrued expenses. Not used for the cash basis or modified cash basis. Used under the accrual basis.
  • Loans. Not used for the cash basis, though some companies prefer to include it. Used under the modified cash basis and accrual basis.
  • Common stock. Used under the cash basis, modified cash basis, and accrual basis.
  • Retained earnings. Used under the cash basis, modified cash basis, and accrual basis.
The exact number of inclusions and exclusions used for the balance sheet under the cash basis is really up to the user; the cash basis is not supported by any accounting standards, so the exact structure of the cash basis balance sheet is decided by common usage. Thus, you will see a variety of alternative formats for the cash basis that may include or exclude additional line items, such as inventory and fixed assets.
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Last edited by Lorin Browning; 11-23-2016 at 05:08 PM.
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  #10  
Old 11-23-2016, 03:10 PM
Lorin Browning Lorin Browning is offline
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Additional comments to above:

If the balance sheet is for the bank or creditors, then you should include fixed assets, accumulated depreciation, accounts receivable and accounts payable -- that is, if you want them to take your client seriously. In other words, there is very little use for a purely cash based balance sheet.
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Last edited by Lorin Browning; 11-23-2016 at 03:53 PM.
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  #11  
Old 11-23-2016, 04:51 PM
gpierce9 gpierce9 is offline
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thank you very much. glen
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  #12  
Old 01-08-2017, 04:27 PM
dp1903 dp1903 is offline
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Cash basis and modified cash basis

The information that Lorin Browning gave is very good.

Pages 118- 123 in the link below explain the difference between accrual accounting and pure cash basis accounting.

https://docs.google.com/file/d/0B8pi...NVOUhaYjA/edit

Cash basis accounting simply follows the inflows and outflows of cash and doesn't try to match revenues with expenses. There is no need to depreciate assets since you aren't trying to match revenues and expenses, and no receivables, payables, or debt of any kind because those are credit transactions. Cash basis doesn't account for credit transactions at all.

If you buy a truck for cash, it is an expense. Again, just recording the outflow of cash, not depreciating an asset over a period to match expenses with revenues.

Modified cash basis can include a number of items not normally found in a pure cash basis financial statement, as Lorin Browning has stated.

I wasn't taught cash basis accounting when I was in college and getting a Bachelor of Business Admin degree with a major in accounting. They trained us to work for large corporations that used accrual basis accounting. I was lost when I went to work for smaller companies who used primarily a modified cash basis. It's pretty much just common sense, but takes a while to get acclimated to it.

I am retired now, but doesn't QuickBooks give both accrual and cash basis accounting financials?
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