Unapplied Cash Payment Income in QuickBooks: What It Means for Your Business

If you use QuickBooks for your accounting needs, you may have noticed an account called Unapplied Cash Payment Income on your Profit and Loss report. This account is automatically created by QuickBooks for proper tax reporting when you use the cash method of accounting. But what does it mean and how does it affect your business?

This article will explain what unapplied cash payment income is, why it appears on your report, how to resolve it, and how to avoid it in the future. This will also provide some tips and best practices for using QuickBooks effectively.

What is Unapplied Cash Payment Income?

Unapplied cash payment income is the income from customer payments that are received but not applied to any sales form, such as an invoice or a sales receipt. Simply put, you took the money in but never declared the income on a sales form.

This usually happens when:

• A customer prepaid you and you recorded the payment before creating the sales form.

• You entered payments without matching them to sales forms.

• The product or service item on the invoice is mapped to a bank account type instead of an income account type.

Why Does Unapplied Cash Payment Income Appear on Your Report?

Unapplied cash payment income appears on your Profit and Loss report when you use the cash method of accounting. The cash method of accounting means that you record income when you receive it and expenses when you pay them.

The IRS requires this account for proper reporting of "Constructive Receipt Income", which means that you have to report income when it is available to you, even if you don't actually receive it or apply it to a sales form.

For example, if a customer pays you on December 31st but you don't create an invoice until January 2nd, you still have to report that income in December because it was available to you then.

How to Resolve Unapplied Cash Payment Income on Your Report?

To resolve unapplied cash payment income on your report, you need to apply the payments to invoices or create invoices for payments. This will ensure that your income is properly recorded and matched to your sales forms.

Here are the steps to do so:

1. Sign in to QuickBooks Online.

2. Click on Reports > Profit and Loss.

3. Select the custom date range to choose a specific report period.

4. Under the Accounting method, select Cash.

5. Click Run report.

6. Go to the Income section, select the amount for the Unapplied Cash Payment Income.

7. In the Transaction Report, locate a transaction listed as a Payment.

8. If that Payment transaction matches an open invoice, click on the Payment date to open it.

9. Under Outstanding Transactions, check the open invoice.

10. Click Save and close.

11. If the Payment transaction doesn't match an open invoice, go back to the Transaction Report and click + New.

12. Under Customers, select Invoice.

13. Fill out the form with the same customer, amount, and date as the payment.

14. Click Save and close.

15. Go back to the Transaction Report and click on the Payment date to open it.

16. Under Outstanding Transactions, check the invoice you just created.

17. Click Save and close.

Repeat these steps until all unapplied payments are resolved.

How to Avoid Unapplied Cash Payment Income in the Future?

To avoid unapplied cash payment income in the future, you should follow these best practices:

• Create invoices or sales receipts before recording payments from customers.

• Match payments to sales forms as soon as possible.

• Make sure that your product or service items are mapped to income account types, not bank account types.

• Review your Profit and Loss report regularly and check for any unapplied cash payment income.

Conclusion

Unapplied cash payment income is a common issue that can affect your tax reporting and business performance if not resolved properly. By following this guide, you can understand what it is, why it happens, how to fix it, and how to prevent it from happening again.