Cash-based accounting workarounds
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Cash-based accounting workarounds
We've scoured our resources to offer a cash-based accounting workaround to Wave's accrual-based system.
When you create an invoice in Wave, your Accounts Receivable is debited and increased on your...
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This is honestly a very poor choice for Wave to operate this way. Most users are freelancers and small businesses that need to operate on a cash-basis. This platform is only adding complication unnecessarily and making it more difficult for its users. Doing a yearly adjustment solves the number problem but only makes it harder to figure out which invoices where paid in what year. The bigger picture is more skewed this way. Very disappointing.
Hey @Brice_H this article was primarily geared towards people who were using the previous version of Wave; meanwhile in the version of Wave you're using, you can adjust reports like the Account Transaction report to reflect cash-based, as well as cash & cash equivalents when showing the data (rather than accrual only). You can also use the Cash Flow report in the Reports tab, if that helps!
Hi @Ryan_W -- is there a way to adjust to cash in the Balance Sheet or Income Statement Reports, rather than doing it just at the Account Transaction level? If not, would I manually just have to update the P&L to make it cash-based. I hope you'll be working on a better cash-based system in the future!
Hey @lincolnbailey not at this time, primarily because those reports are rooted in the accrual logic of Wave's accounting system. I can't guarantee that this gets changed, although your thoughtful feedback about this is appreciated!
Just my 2 cents. What I suggest to clients who want to use Wave for invoicing and accounting is to set up two profiles. One is the invoicing company. The second profile runs cash basis only (imports bank and credit cards). By running it this way, your not concerned about the books of the invoicing company. Meaning balance sheet and income statement and it doesn't interfere with the cash based company. Works well for many of my clients.
Mike G, CPA
www.mgfinancial.net
Better Service - Better Pricing
Hey @Jenni! Within Wave, when you create an unpaid invoice, the total of the invoice will show up on your accounts receivable. When you receive the payment in cash, you can record the transaction as a deposit transaction and select the account as "Cash on Hand" since you have received physical cash. Once you have created the invoice in Wave, and the income transaction has been created as well, you can categorize the transaction as "payment received for an invoice in Wave" and then select the invoice from the dropdown list. This will assign it to the invoice and mark the invoice as paid. The screenshot below should show you a picture of what this should look like.
It's been great that we can run certain reports on a Cash Only basis (e.g. the Cash Flow report) - is there any chance of this feature being added to the Profit & Loss Report any time soon? We've been recommending Wave to clients here in Australia but not being able to run a P&L on a cash basis is a pretty big drawback at the moment. As you rightly noted, it's a very common setup for most of your market.
@AllyEvans We definitely hear you and the many other Wavers who have expressed the need for Cash basis reporting. It's something that the team here has discussed but in full transparency, it's not something that is currently on our Product Roadmap. In saying this, that doesn't mean that it will never be. Many of the highly requested features are revisited periodically to see if we can potentially add or remove things from our Roadmap. Curious if you are willing to share the type of industry that you operate? This would help bring colour to the industries that need access to this sort of reporting as we continue to evaluate the impact that a feature like this would have.
Thanks for your reply and your honesty, @JordanFromWave ! I work for a tax agent so we were recommending Wave to our sole trader and small business clients, but (and I say this in the interests of transparency, not to be rude!) this has thrown a little bit of a spanner in the works. The majority of small businesses, sole traders, freelancers etc in Australia operate on a cash basis for tax so it's across all industries. You're only required to operate on an accrual basis in Australia after you reach a certain size.
@AllyEvans Thanks for sharing those details about your industry. Like Jordan said, highly requested features are revisited periodically so the Product Team always takes feedback like this into consideration. Appreciate you being vocal about this!
As a small business operator in Australia, I can confirm my accounting and reporting should all be done on a Cash basis. Not having this option for P&L and Balance Sheets is quite frustrating, and I am having to evaluate alternatives.
Hey @Zeafer. Since Wave is accrual based, we don't have any plans to implement any cash-based reporting anytime soon. It could be something that we might consider in the future (as others have said in this thread)? But that would take a lot of overhauling/coding in order to adjust a product that we've already built strictly for accrual based accounting. I appreciate the +1 to add this feature in Wave though, and when/if we ever have more information regarding this type of reporting, we will be sure to share within this thread.
Apologies for the long post.
I'm trying to work out if I can make Wave work for me as I need to account using the cash based system. My issues so far concern PayPal, iZettle, and bad debt expenses caused by unpaid invoices.
I've calculated my cash based income on paper but the figures in my reports don't match until I make some additional calculations. For PayPal when looking at the Cash flow report I have to add on the PayPal fee because Wave is clearly only counting PayPal income after the fee is deducted. I've always counted the full invoiced or received amount as income in the cash based system, and then deducted the fee as an expense
I have an iZettle card reader and originally set up an iZettle account under Money in Transit in my chart of accounts as that seemed appropriate but think maybe I was wrong. With iZettle I don't receive the funds straight away but they deduct their small fee and automatically deposit into my bank account after a few days. I register my income in the iZettle account in Wave and make an expense for the fee. Once the income appears in my bank account from iZettle I set it as a transfer from my iZettle account. So I see my full amount, the fee and the transfer which makes sense. However in my Cash Flow report I see Transfer for iZettle and iZettle fee listed and then have to do some manual adding and subtracting to adjust Total Sales to correct figure. It should work like PayPal
To get my cash flow report Total Sales figure to match my actual income, which I've calculated manually, I have to subtract the Transfer for iZettle amount, add the iZettle fee and add the PayPal fee.
Things are further complicated by bad debt expenses. As suggested for invoices which won't be paid, I pay them off with my Undeposited Funds account and then create a Bad Debt expense in Undeposited Funds so that it balances. Unfortunately this looks like income in cash flow so I have to subtract these payments from Total Sales as I wasn't really paid and take off the expense as there was no real expense.
Is there some way I can trick Wave into displaying my actual income in the cash based format so I can see my real figures, just as if I simply added all my income up and all my expenses up, and also take care of those bad debt invoices? I'm guessing something can be done with Journal transactions.
In the attached example the actual total sales are £893 so I have to subtract the iZettle transaction, add the PayPal and iZettle fees and subtract the bad debt expense to reach £893.
With PayPal should I actually be only counting the amount minus the fee as income and the same goes for iZettle? Should I have set up iZettle under Cash and Bank in Chart of Accounts? There aren't many transactions so I could fix that.
Finally can I do something so that those bad debt invoice payments don't look like income in my reports?
Thanks to anyone who takes the time to read this, understand it and help
Hi @AndyK ! There is a lot to unpack in your question, but I'd be happy to work through this with you. Can you please send me a DM with the primary email address you use for Wave?
" When you create an invoice in Wave, your Accounts Receivable is debited and increased on your balance sheet. Also, the income account you have chosen is credited on your income statement. Once payment is made on that invoice, Accounts Receivable is credited (decreased), and your bank account balance is debited and increased. " - This is not happening in my case. I created an invoice (for a sale on credit) but it did not increase accounts receivable and the income did not increase as well. And when I manually recorded the payment from a credit customer (Accounts receivable), the income increased again with the amount of payment made by the credit customer. How should I link account receivable accounts to specific customers? I am new to wave. Please guide.
Hey there @Unas123
I'm curious if it has something to do with the income account you set your invoice to? I just tried this and everything balanced out well. A couple questions to ask:
Let us know if this is a common issue with your whole account.
Looking forward to hearing from you.
Hi Barsin,
Thank you for your reply.
1. Income account is sales. .. but how to set my account to an income account. I created a sales account in my chart of accounts. Is this a correct way?
2. I did not set my products to a specific income account. Credit sale was on 20th April 2019 and payment was manually recorded through the tab on the invoice on 20th May 2019.
3. I am following the accrual basis.
4. Problems:
-How can I credit a customer and reduce accounts receivable balance on Wave? I have attached 6 screenshots for your reference.
Hi BarsinA,
Could you please reply to my message above?
Thnaks.
Hi @Unas123, thanks for your detailed reply! I was only able to view one of the screenshots you attached named 'Balance Sheet.PNG'. If you want to re-attach the others, we would be happy to take a look. In the mean time, I can provide some further detail on the points you made here!
For the 'Account' on a transactions you can only choose accounts that are 'Cash and Bank' accounts (you can view these on your Chart of Accounts page). If you have added an income account to your Chart of Accounts, this will not show up when selecting the 'account'. You can categorize transactions to specific income accounts, such as 'Sales'.
It can be easy to miss, but when you create a Product or Service you will have to select an 'income' account for each one. To view what you have selected so far, click to: Sales -> Products & Services -> click the pencil to 'edit' a product/service -> you will be able to view or change the 'income account'.
If you want to re-attach your screenshots we can look into this a little more!
Hi EmmaP,
Thank you for your reply. Please let me know how can I record credit sales. I believe the accounts receivable should automatically be reduced when payment is made by a customer for a previous credit sale. The problem is that there is as an effect on the income account when the payment for a credit sale is made. There should not be any effect on the income account because of the accrual system. Yes, I have created an income account (sales) in my chart of accounts. But for accounts receivable. I have created only one account. Should I create accounts receivable accounts for each customer?
I will attach the pictures once I get home because they are in the other laptop. I the meanwhile, could you please answer the above question?
Appreciate your time.
Thank you
Hi Emma,
Here are the screenshots. Please note that when a credit customer pays and the payment is marked through the tab in the invoice, it automatically creates a duplicate entry in the income account
Hi @Unas123! A few things to note here -
1. When you create and send an invoice, this will be marked on your Accounts Receivable report as a debit.
2. When you mark the invoice as 'Paid' the Accounts Receivable will note a credit to the account.
The 'income' account (in this case 'Sales') will record the income for a particular product or service that has this income account assigned to it when used on an invoice. This is how you can track your 'Sales' from invoices or particular products. If you want to see why the income account is being credited for a sale, you can head to: Sales -> Products and Services to click into each and see what 'income account' has been assigned to your products and services. You could also click on 'Kaki Bakery - 1 - graphic ad' in the screenshot example you shared above, to view the invoice and see the product/services that have contributed to the Sales income account.
If you receive payment for an invoice, if you currently follow this workflow: Sales > Invoices > Record a Payment it will automatically create an 'Invoice Payment' transaction on your transactions page. If you have the payment transaction already in Wave, this can create duplicate income. What you will want to do is categorize the income transaction as 'Payment received for an Invoice'. You can then select the outstanding invoice. This will mark the invoice as 'paid' and will not create any duplicate income transaction.
The article was just plain confusing to someone looking to use Wave as a way to start using accounting in a small business that sells everything for cash or credit/debit cards at farmers markets and never has invoices of any kind and, likewise, uses a debit card at point of sale for all expenses. Thus, what does one do when there are no accounts payable and accounts receivable? Does that mean that, even though Wave is using accrual, everything is really, still essentially, cash-basis, since nothing accrues? Is there anything special one would need to do in this case, or would nothing else be necessary because there are no invoices, purchase orders, or anything else of the sort accruing?
Only when you use either invoicing or bills does Wave account in accrual. Cash basis is default if neither is employed.
Joining the others in saying lack of being able to support cash basis without accounting hacks is the reason I'll be sticking with my existing solution. Hope you guys can launch a parallel product at some point to include the rest of us.
Hey @BC79
Appreciate you reaching out about this. We understand the different types of businesses using Wave and are hoping to make improvements in the future. Thanks!
I did this for my Accounts Receivable and it worked fine.
For Accounts Payable I have a ~$400 balance on my credit card. It looks like I would add journal entries debiting/crediting my checking account on 12/31 and 1/1 respectively in order to deal with this, as the bill will be paid in January from that account. Is this correct?
@Carrie_W,
In the US you can deduct credit card charges through year end even though you have not paid them. You would not need to make an adjustment for credit card liabilities.
Love the invoicing system. But an option for strictly cash-basis without workarounds would be nice. BTW simply saying "you should just use accrual" is kind of condescending to your customers. I'm a small one-man business. If I invoice someone for $1,000 and they take over a month to pay me, that is significant to my calculation for paying off debt, saving, or re-investing in my business. At the end of the month I still have to use an Excel sheet to determine my actual operating profit and what I can afford to pay to debt and savings.
Hey all! Thanks for your continued patience in this thread, and I'm really glad to be the bearer of good news! We've launched Cash basis reporting on most reports now, and you can find a really solid amount of information on that in this community thread here!
@mikem60 Definitely appreciate your context here. You seem to have come into this thread at a really opportune time
Enjoy!
I'll be closing this thread out as we've deemed this solved, but if there are any further discussions you'd like to have around these cash basis reports, please feel free to follow up in the thread I've linked above!