The customer pays you on December 29, 2018.You bring on your first customer, who agrees to a $120,000 annual contract covering all of 2019.You start an IT company that will provide IT services under annual maintenance contracts.The accrual basis, while more difficult to maintain, can paint a much more accurate picture of your company’s performance and health.

Small companies often file their tax return using the cash basis, so if the company’s management does not care to see accrual basis reports, the cash basis is probably enough. Which accounting method should I use for my company’s books?Ĭash basis accounting is undoubtedly easier and less time consuming to maintain, and for many small companies, it is sufficient. If you pay an attendance fee today for a trade show taking place next year, recognize the expense in the month that the trade show actually takes place.If you pay your insurance bill for the whole year in advance, recognize the expense pro-rata over the course of the year.If you get paid up front for a 6-month maintenance contract, recognize the revenue pro-rata over the course of the 6 months.At a high level:Ĭash Basis – Recognize revenue when it is collected and expenses when they are paid (the recording of revenue and expenses follows the cash)Īccrual Basis – Recognize revenue and expenses in the period to which they relate, for example: The lack of our ability to choose for ourselves makes it much more difficult to manage the books of a company who need to accurately track both cash basis and accrual basis figures.Ī quick note – As I wrote this, I realized that it got pretty long, but don’t worry, there are a lot of pictures, and there’s a reasonably functional workaround at the end, so it’s worth it! Cash vs AccrualĪs a quick review, cash and accrual are two methods of maintaining your books. That said, there is still (what I consider to be) a glaring hole in QBO at a basic, fundamental level: the inability to decide for ourselves if a journal entry should affect both accrual and cash basis reports or if it should only affect accrual basis reports. The improvements Intuit has brought to their cloud-based offering over the past few years have amounted to a near-total overhaul of what was originally an unusable replacement for the classic Quickbooks Desktop.

Quickbooks Online (“QBO”) does many things well.

Qbo writedown account