QuickBooks Tip: Cash to Accrual Accounting

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Understanding cash vs. accrual accounting and what is included under each basis can be difficult for business owners – and even for some accountants! With one of its best features, QuickBooks makes it easier to convert income and expenses from cash to accrual and back again.  Business owners have the ability to run reports on either basis simply by customizing the report.

The two main financial reports are profit and loss and balance sheet.  The profit and loss report reflects the business income and expenses for a specific period of time.  The balance sheet report reflects the information about what you own, what you owe and what you have retained in equity as of a certain date.

Understanding cash vs. accrual accounting

Regardless of what basis you use to run your business or report your taxes, it’s helpful to analyze your company’s performance from different angles.  Income on the accrual basis includes all bills sent to your customers, regardless of whether or not you have received payment.  Income on the cash basis only includes income that your customers have paid to you. Expenses on the accrual basis include everything you owe, regardless of whether or not you have sent a payment.  Expenses on the cash basis include only the expenses that you have already paid.

As a business owner, it is important to track your income and expenses in order to break even.  This is best determined on the accrual basis.  You may have cash in the bank because you haven’t paid any bills, but that doesn’t mean that you have a profit for the month.

In order to get good accrual basis reports, you need to use the accounts receivable and accounts payable modules consistently and effectively.  In accounts receivable, you need to enter invoices and receive payments.  Use accounts payable to enter and pay your bills.

How to change report preferences in QuickBooks

When you originally set up your QuickBooks file, you set your reporting preference to cash or accrual.  You can easily change your reports to the opposite basis by following these steps:

  1. Select your report.
  2. Click “modify report” to open the modify report dialog box.
  3. Select “display” tab and click “cash” or “accrual” in the report basis section.
  4. Apply the change.

QuickBooks converts accrual to cash reports by removing the unreceived income and the unpaid expenses from the report.  However, there are a few nuances that can cause the cash basis report to be inaccurate.  If one balance sheet account (e.g., inventory) is linked to another balance sheet account (e.g., accounts payable), QuickBooks won’t remove either item, allowing accounts payable inventory to appear on a cash basis report. Additional accounts that won’t be removed include unpaid payroll taxes, credit card liabilities and sales tax payable.

Despite these pitfalls, the overall conversion process works well, and it is one of the best QuickBooks features to help business owners assess performance.


Lisa Kahn Little, CPA, is a Entrepreneurial Services Associate Principal at Kaufman Rossin, one of the Top 100 CPA and advisory firms in the U.S.

  1. John Langlais says:

    Is there a formula or manner in which I can reconcile the differences on the P&L and/or Balance sheet between cash basis and accrual basis. Why would QBO report a higher value for an expense on the cash basis?

    • Erika Quintana says:

      Hello John. Thank you for your question!

      Unfortunately, there is not a formula to reconcile the differences between cash and accrual basis.
      In order to be able to reconcile the differences on the Profit and Loss and the Balance Sheet between cash and accrual basis, we recommend reviewing the differences between the cash and accrual basis in terms of the definitions for each.

      Under the cash basis of accounting, revenues and expenses are recognized at the time cash is received or paid.
      Under the accrual basis of accounting, revenues and its matching expenses are recognized when they are generated and not at the time cash is received or paid.

      Taking these definitions into account, in order to convert from accrual to cash basis you need to subtract Accrued Liabilities, Accounts Receivable, Accounts Payable from the Profit and Loss and add Prepaid Expenses, Inventory, and Customer Prepayments to the Profit and Loss.

      The following article gives an explanation as to why some expenses on cash basis show higher than accrual: Click here

      However, Quickbooks allows the option of seeing reports in either cash or accrual basis. Click here

      We hope this helps!

  2. Carol Schreckengaust says:

    Why can’t you run a true cash balance income statement? I’m not sure why credit card payable, accounts payable, etc show up on a cash basis income statement. Is there anyway to run a TRUE cash balance income statement.

    • Erika Quintana says:

      Hello Carol! Are you referring to running a balance sheet? If so, you can do this by changing the filter to “cash basis.” Hope this helps you!

  3. Clift Richards says:

    I appreciate your article and your responses to people’s questions. Good information and service to the QuickBooks community.

  4. Paul Wagner says:

    I have been through some Audits and realized in QB, I am not truly on an accrual based system, even though you can easily switch back and forth. For example, it does not pick up unpaid taxes, vacation pay, depreciation etc. Is QB capable of running both Accrual and Cash Basis side by side?

    • Erika Quintana says:

      Hello Paul! Thank you for your question. Unfortunately, it doesn’t look like QuickBooks has that feature. If you are using QBD, you can export to excel and combine manually. If on QBO, you can have multiple report tabs open and view one report on cash basis and another tab to view report on accrual. We hope this helps!

  5. Luke says:

    I do dog training lessons where it can take many weeks to fully finish the service. I get paid first and render the service over multiple dates. Will this easily track that initial payment as a liability (deferred revenue) and then when one out of six of the training sessions is completed I can change 1/6th of it from deferred revenue to actual revenue, while leaving the remaining balance in a deferred account? Is it all in one section or would I be jumping between pages?

    • Erika Quintana says:

      Thank you for your question! QuickBooks would not necessarily do this action automatically for you. The initial liability (deferred revenue) would need to be manually entered and then the earned revenue portion would need to be manually adjusted as the services are provided. These balances would not be on the same page unless you are looking at the trial balance as the deferred revenue liability would be on the balance sheet while the earned revenue would be on the profit & loss.

  6. Mike says:

    Does this still just convert to the different basis methods 2021? Or does Quickbooks actually write the journal entry for both on the backend?

    • Erika says:

      Thank you Mike for your question. QuickBooks does not make a visible journal entry (as it is done through the backend of the software) for Accounts Receivable and Accounts Payable when transitioning from Accrual Basis to Cash Basis reports. If your Company has amounts that should be included in accrual based financial reports such as: Accrued expenses, Prepaid expenses, Accrued Salaries, etc., then those entries will need to be entered by you manually. As previously stated in the original Blog, the following will not be removed from Cash Basis reports: unpaid payroll taxes, credit card liabilities and sales tax payable.

  7. Dimitrios. Paliouras says:

    I use Quickbooks as a Real Estate managing company. I noticed it does not call tenants, it does not have expiration lease date, it does not have have reminders to renew the lease on the tenant (job) also the list of companies the spear as the last used. It should be listed alphabetically

    • Kaufman Rossin says:

      Thank you for your comment, Dimitrios. We work with many companies in the real estate sector and understand your frustration. Perhaps QuickBooks will release a solution in future updates.

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