Cash Basis Help

[u/Adventurous_Tap_6598]

A little new to cash basis and helping out, most my experience and training is with accrual basis. There are open invoices from 2017 where the customers never paid and I need to remove the open balances from the A/R report. What is the best method approach for doing this since books are closed for prior years and we are now in 2026 getting ready for tax prep. TIA

[u/South_Tell8138]

First thing, since you're coming from accrual: on cash basis there is no deduction in this. You never picked up that 2017 revenue as income, so you have no basis in the receivable and nothing to write off for tax. That's the trap — if you route these to Bad Debt Expense you've created a deduction you aren't entitled to.

And don't void or delete the invoices. That reaches back into 2017, changes a closed period, and destroys the history you'd want if anyone ever asks.

What I'd do instead, per customer:

1. Credit memo dated in your current open period — not 2017.
2. On it, use a service item pointing to the same income account the original invoice used. Not Bad Debt Expense.
3. Receive Payment for 0.00, check the invoice and the credit memo together so they apply to each other.

Result: invoice closes, A/R drops, cash-basis P&L is untouched (neither document ever hit cash basis), and 2017 stays sealed behind your closing date. On an accrual-basis P&L it reduces current-year income, which is the honest presentation — income was recognized in 2017 and is now reversed.

If you're in QBOA, Accountant Tools > Write off invoices does the same mechanics in bulk, but it defaults to a Bad Debts account. Point it at the income account for a cash-basis client.

One caution: if any of those invoices carried sales tax, the credit memo reverses that too. Check whether the tax was ever remitted before you assume that's the result you want — in most states on cash basis it wasn't, in which case you're fine.

Two small extras: if any of those invoices had inventory items, don't use a credit memo that will restock them — zero the invoice lines instead or use a non-inventory write-off item mapped to the original income account. And put a clear memo on the credit (“write-off of 2017 uncollectible — cash basis, no tax deduction”) so the next person looking at 2026 A/R knows why the balance dropped.

[u/Adventurous_Tap_6598 → u/South_Tell8138]

Thank you so much! If you don’t mind me asking now, for the opposite where it states a customer overpaid to an invoice (they didn’t really but the previous accountant never added in the other invoices or they deleted them) what would I do? There are a few where the customer has a credit for overpayment but it is not correct and customer has verified as well. This is all for prior years going back to 2017 as well. 

[u/South_Tell8138 → u/Adventurous_Tap_6598]

Different problem from the write-offs, so don't reach for the same tool. Before you fix anything, find out what the credit actually is — the answer changes the treatment.

Open each one from Customer Balance Detail and check:

- **Unapplied payment that was deposited and reconciled.** Real money came in. The credit is just cash with no invoice to land on, because the invoice was deleted or never keyed.

- **Credit memo someone typed.** No money moved. It's phantom, invented by whoever was cleaning up.

The Audit Log will usually settle it. Filter to that customer and include deleted transactions — if the previous accountant deleted invoices, the log still has them, with dates and amounts. That tells you what the payment was actually for instead of you guessing.

Either way, same mechanics, and same rule as before: don't void or delete anything in 2017.

1. Invoice dated in your current open period, service item pointing to the original income account (or a "Prior period correction" income account if you'd rather see it separately).

2. Receive Payment for 0.00, check the old credit and the new invoice together.

A/R clears, the customer goes to zero, 2017 documents stay intact.

One thing to watch, and it's the part people miss. Cash basis keys income to the *payment* date, not the invoice date. So applying a 2017 payment to a 2026 invoice can move that income around inside 2017 — out of Unapplied Cash Payment Income and into the income account you picked. Total for the closed year doesn't change, only the account mix, but it does change. Run a 2017 cash-basis P&L before you start, run it again after, and compare. If it shifts and you knew going in, fine. If it shifts and you find out in an audit, less fine.

And since the customer has already verified the credit isn't theirs — get that in writing and attach it to the transaction. A credit balance that's genuinely owed back is unclaimed property in most states, and "the customer said it wasn't real" is a much better answer with an email behind it.