Even though almost all small businesses use the cash basis of reporting for their tax returns, QuickBooks states up front that the program is not designed to be used cash basis and will report anomalies. It suggests fixing the problem manually. Here is how to do that:
Run and print the accrual basis profit & loss statement for the date you are working on and for the prior period. For example, 12/31/16 and 12/31/15.
Compare the accounts receivable amounts and calculate the change. For example, if a/r was $20,000 on 12/31/15 and $30,000 on 12/31/16, then a/r grew by $10,000 during 2016. These sales should be excluded from 2016 cash basis sales.
In this example, manually decrease the 12/31/16 accounts receivable by $30,000. Decrease 2016 sales by $10,000, and decrease beginning equity by $20,000. Your books should still be in balance. A simple way to make these changes is to export the reports to Excel and then change the figures. There are other ways to make these adjustments, too, such as using the general ledger and setting up a dummy account for the change to accounts receivable.
The above describes a simple way to fix your cash basis accounts receivable. Similar entries may be needed to fix your inventory, sales tax payable, and accounts payable. An experienced tax person should be able to do this for you. Or a great bookkeeper such as Liz Mayta in San Mateo can handle it. QuickBooks also has a link to its database of local QuickBooks experts.
Bess Kane, CPA