Accrual but numbers are Cash basis

[ILLMAS]

New client, prior year corporate tax return is mark accrual, but when I compare the income to their QB file it seems it was reported on the cash basis, even the BS was does not reflect any A/R or A/P.  I am at a bind here would hate to dig deeper into the mess, what would you do?

 

Thanks

 

MAS

[jklcpa]

Is the business one that typically would report on the cash basis?  If Quickbooks is reporting on cash basis and the tax return is also, maybe that's the way it should be reported. I'd check the return 2 years back. Is it possible that the only thing wrong with last year's return is that the box checked indicates "accrual"?

 

It's possible to use QB to track a/r and a/p while reporting on the cash basis. If that is your case, the QB chart of accounts and trial balance would show the a/r and a/p accounts. Reports can then be run for either cash or accrual.

[kcjenkins]

Another possibility is that the preparer marked it accrual but, in fact, the business actually does not have any A/R or A/P.  Unusual, but not impossible, especially with young small businesses.  In which case it's correct either way.

[jklcpa]

Doctors and dentists offices are a good examples of those that will report on the cash basis for tax purposes where tracking receivables is very important since it is usually a very large, or largest, asset that have many adjustments to arrive at the final collectible amount. No way would they want to pay taxes on the initial receivable recorded for services rendered when downward adjustments due to patients' negotiated rates are the norm.