You’re running your monthly reports when you notice an unusual account on your P&L. Perhaps your accountant inquired about it, or perhaps it simply stood out like a sore thumb. Unapplied Cash Payments in QuickBooks are a peculiar beast. There appears to be a number there, and if you don’t know what it is, fixing it takes far longer than necessary!
Unapplied Cash Payments are the net effect of posting a payment before the invoice date. They only arise in Cash Basis accounting since Accrual Basis reports would automatically match the income on the invoice to the invoice date (unless you have a fancy-dancy revenue recognition app connected to your QuickBooks).
The fix is really simple, but you must ensure that they do not affect any tax filings, such as sales tax reporting, as they are sometimes discovered months after the offending transaction occurred.
Let’s go over an example. We’ve invoiced Puppy Paws, LLC for pet sitting services. Isn’t the invoice seemingly innocuous? That’s exactly what it is. There is currently no problem.
In December, we receive cash from Puppy Paws. Unfortunately, we haven’t had enough coffee and have unintentionally entered the payment with a November date. Unless we are time travelers, we have little hope that this timeline is correct!
The main difficulty is that the date of payment happens before the invoice is issued. As a result, the invoice does not yet exist as of the typical November financial statement. QuickBooks is baffled, so it creates a phantom account called “Unapplied Cash Payment Income.”