Converting Financial Statements to a Cash Basis

Modified on: 2017-09-22 13:51:49 -0400


To convert to a cash basis you will need to make journal entries to close accounts receivable, accounts payable, vendor deposits and client deposits and work in process (Pro system only). Make general journal entries for each account in the month you wish to convert to a cash basis but then this entry should be reversed the first of the next month. If you are using the Pro software you can mark the entry to Auto-Reverse and it will automatically reverse in the following month.  For DM Standard, make a new entry on the first of the next month that is exactly the same as the closing entry except with the debits and credits swapped.  Design Manager recommends creating a new account to handle each of the transfers because this keeps the journal entry simple.  Examples of accounts would be a new revenue account entitled ?Unpaid Invoices? for transferring the entire accounts receivable balance, an expense or cost of goods sold account entitled ?Unpaid Costs and Expenses? for accounts payable,  a revenue account entitled ?Client Deposit Revenue? for client deposits, and a cost of goods sold account entitled ?Open Vendor Deposits? for vendor deposits.


Close accounts receivable:   

You will need to make a credit to the A/R account and a debit to the sales account.  If sales tax is being paid on a cash basis, then part of the debit could be done to sales tax payable. The amount of the credit is the amount of accounts receivable.  The debits must total up to the accounts receivable amount. The debit to the sales accounts can be broken down to multiple sales accounts or a single sale account.  


Close accounts payable:

You will need to debit the accounts payable account and credit cost of goods sold or expenses.  The credit to the cost of goods sold accounts can be broken down to multiple cost of goods sold or expense accounts or a single cost of goods sold account.  As an example, for a telephone bill you would debit a/p and credit telephone expense. The total of the credits must equal the balance in accounts payable.


Close client deposits:

You will need to debit the client deposit account and credit a sales account by the amount in the client deposit account.


Close vendor deposits:

You will need to credit vendor deposit account and debit one or more cost of goods sold accounts by the amount in the vendor deposit account.


Close Work in Process (WIP) (Pro users only):

You will need to credit the WIP account and debit cost of goods sold accounts by the amount in the WIP account. You can debit multiple cost of goods sold accounts if desired.




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