Cash Basis accounting registers were updated in 2024 and early 2025 to align with the American Institute of Certified Public Accountant’s (AICPA) “modified cash basis”, simply referred to as “cash basis” by the accounting profession. This method of accounting is recognized as an Other Comprehensive Basis of Accounting by the AICPA, and is not governed by the Financial Accounting Standards Board or SEC. It is a method that allows more simplistic accounting flow than in the accrual basis of accounting.
Cash basis accounting is an accounting method that records revenue and expenses at the time of cashflow. This method differs from accrual, where revenue and expenses are recorded when they are earned or incurred, respectively, regardless of when the cashflow happens.
Cash Basis variant - CustomBooks™ presents two options for using cash basis: a version that includes inventory on the balance sheet and a version that does not. These two options are referred to as the “Variant of Cash Basis reporting”. Cash accounting is generally not utilized by companies carrying inventory, but is available under two formats for users with inventory who wish to report cash basis numbers.
Cash without Inventory: Cost of Goods Sold is recorded at the time of purchase. Cost of Goods Sold is not further reduced at the time of sale and inventory is not recorded on the balance sheet. Utilizing the cash without inventory variant allows users to avoid the complexities of recording inventory that has been received but not yet been paid. Users can run accrual-basis reports to view inventory on the balance sheet.
Cash with Inventory: Inventory is recorded at the time of purchase and Cost of Goods Sold is recorded at the time of sale, similar to the function of accrual.
Users are not required to utilize the cash basis reporting method and may opt for accrual reporting only.
When a cash basis is enabled in a tenant, a separate set of records are kept for each transaction, which utilize the cash basis mapping and framework. Maintaining records for both methods of accounting allows users to run either accrual basis or cash basis reports.
Below scenarios depict how cash basis accounting is used in the software. Account references refer to the account selection in accounting settings.
Purchases transaction flow:
Cash without Inventory: Cost of Goods Sold increases through vendor prepayments and bill payments, and decreases with vendor refund receipts. Inventory is not used and accounts payable is not accrued for.
Cash with Inventory: Inventory increases through item receipts (or bills, if item receipts are not used), and decreases with vendor credit memos and vendor refund receipts. Inventory Received Not Yet Paid is increased through item receipts, and decreased with prepayments, vendor credits, and bill payments if item receipts are not used. Accounts payable is not accrued for.
Sales transaction flow:
Cash without Inventory: Sales and sales tax increase with prepayments, cash sales, and cash receipts. Sales Return & Refunds increases with customer refund payments. Neither Cost of Goods Sold, Inventory, nor Accounts Receivable are used.
Cash with Inventory: Sales and sales tax increase with prepayments, cash sales, and cash receipts. Sales Return & Refunds increases with customer refund payments. Inventory decreases with shipments or sales invoices and increases with customer returns and refunds. Cost of Goods Sold is similarly recorded. Inventory Shipped Not Yet Invoiced is increased with shipments and decreased with sales invoices. Accounts Receivable is not accrued for.
Comparison:
Account | Accrual | Cash without Inventory | Cash with Inventory |
Cost of Goods Sold | Recorded when inventory is sold | Recorded when inventory is paid for | Recorded when inventory is sold |
Inventory | Recorded when inventory is received | Not recorded | Recorded when inventory is received |
Sales | Recorded at time of sale | Recorded when customer's payment is received | Recorded when customer's payment is received |
Accounts Payable | Recorded at time of purchase | Not recorded | Not recorded |
Accounts Receivable | Recorded at time of sale | Not recorded | Not recorded |
Deposits and Payments: when the GL tab is used, the document will post records to the cash basis ledgers based on the mapping tool. For instance, if a payment document is used to record a purchase of office supplies (asset), but the mapping tool had mapped office supplies to a supplies expense account, then the payment will post the office supplies asset account in the accrual ledger and supplies expense account in the cash register. If the mapping is not applicable for the specific transaction, a journal entry should be used to adjust the cash basis ledger to the correct account. See further information about mapping in the section ”mapping the chart of accounts”.
Example of the use of mapping:
Three months advance sub-let rental income recorded via Deposit | Purchase of office supplies via Payment | |
Mapping | Unearned Rent (liability) maps to Rent Income (income) | Office Supplies (asset) maps to Office Expense (expense) |
Accrual | Unearned Rent increases Bank account increases | Office Supplies increases Payment method decreases |
Cash (either variant) | Rent Income increases Bank account increases | Office Expense increases Payment method decreases |
Journal entries: a selector indicates whether the journal entry is posted to either the cash or accrual ledgers, or to both ledgers.
Because cash basis accounting follows the guidelines that revenue and expenses are recognized when cashflow occurs, certain accounts in the chart of accounts are not applicable for cash basis accounting. Such accounts include accounts payable, accounts receivable, supplies, prepaid assets, and certain current liabilities.
The mapping tool directs the software how to post to the cash basis ledger in payments and deposits. For instance, prepaid assets are an accrual accounting concept, where the initial cash outlay becomes an asset that is adjusted to expense over multiple periods as the goods or service are used. The cash basis treatment of the transaction would instead process the cash outflow to an expense account, thus incurring the expense when it is paid for. In the CustomBooks™ default, prepaid insurance is mapped to insurance expense, prepaid rent is mapped to rent expense, and prepaid wages is mapped to payroll expense. When this mapping is utilized, a payment document that posts an accrual entry to the prepaid rent account would post to rent expense in the cash basis ledger.
If at any point, mapping needs to be changed or the variant updated, access the mapping tool under Accounting - Tools - Cash Basis Mapping Tool.
If the default chart of accounts is selected, mapping is populated automatically. The mapping can be revised at a later date using the mapping tool - see mapping section above for further details.