Although QuickBooks software allows a company to run reports on the Cash or Accrual basis, note
that it does not mean there are two sets of books. When a Cash basis report is run, QuickBooks
removes any unreceived income and any unpaid expenses and at the same time adds income and
expenses from last year that were paid in the current year converting an Accrual basis report to a
Cash basis report. Ideally, this would clear your Accounts Receivable and Accounts Payable
balances, successfully converting the Balance Sheet to Cash basis. However, this does not always
happen and a balance is left in one or both of these accounts. So why does this happen?
QuickBooks has few limitations in the conversion process. One of the main limitations is when there
is an open balance on invoices or bills which are connected to a Balance Sheet account. When an
Accounts Receivable or an Accounts Payable transaction is connected with another balance sheet
account such as Inventory or Prepaid Insurance, the program simply does not know what to do with
these items so it does not make any adjustments to them. This results in either the Accounts
Receivable or the Account Payable accounts showing a balance. By double-clicking on the balance
in question and then modifying the report to show any open transactions, you are able to see what
transaction is causing the open balance. If needed, a simple journal entry will correct any problem
but you should consult with your accountant prior to making this type of journal entry.