If you run a Cash basis Profit and Loss, you may see a handful of unusual accounts:
Income from Unapplied Cash Payments
Expense for unapplied cash payments
This page will explain what they are, how they got there, and how to fix them.
"Who are you, and how did you end up on my profit and loss statement?!?"
QuickBooks Unapplied Cash Payment Income is a one-of-a-kind account created by QuickBooks and referred to as a "Special Account." You can't delete this account from your chart of accounts, so instead of getting irritated, let's figure out why it's there and what it's for. On a monetary basis, payments received are deemed income, according to some obscure IRS publication. Doesn't that sound reasonable? So, once again, where does this story come from? It is used in two situations:
The transaction is unapplied - In this instance, you recorded a payment (Customer) or bill Payment (vendor) but did not apply it to a matching transaction – in this case, the transaction is "unapplied" (thus the account name), so the revenue or expense must be accounted for on a cash basis. As a result, the payment amount will appear in either of these two accounts' cash basis Profit and Loss.
The dates are reversed - This occurs when you receive a payment but the date is prior to the invoice to which it is applied. This one is a little trickier and requires a little more explanation. On a Cash Basis P&L, QB Online will see the payment first, then put the amount in Unapplied Cash; if the invoice date is also within the report's date range, the amount of the payment will be deducted from the Unapplied Cash account, and then recognised according to the invoice/bill.
“HUH??? What the heck?!?! Why?!?”
Let's look at an invoice/payment scenario. According to those annoying IRS standards, payments are recorded as income on the date of payment, but the invoice data hasn't yet occurred. Therefore QBO's only account to utilise is the QuickBooks Unapplied Cash Payment Income Payment account, so it deposits the payment amount there. If you apply the payment to a future-dated transaction, the report must wait until that data is available before applying the amounts correctly.
"Okay, now that I've figured out how you got here, how do I get rid of you?"
If the transaction has not yet been applied, just modify the payment transaction and apply it to the associated Invoice/Bill. As long as the dates are in the correct order (invoice/bill first, payment later), your cash basis report will appear as expected, with no QuickBooks Unapplied Cash Payment Income accounts.
Correct the transaction dates.
If the dates are not in the correct order (Payment first, then Invoice), you must answer the following question: "Are the dates correct?"
If the answer is yes, then change the Invoice or Bill date to be before the payment date, or change the payment date to be after the Invoice or Bill. Once you do this, the payment will no longer be regarded as unapplied, and the account will no longer be visible. If both the payment date and the invoice date are included in the report, the Unapplied Cash Account will be washed out and the correct revenue accounts will be affected. If the dates cover multiple periods, the Unapplied amount will climb on the first report, then decrease and the right income accounts will be affected on the second report.