Question

QuickBooks Desktop records revenue when an invoice is generated even though cash has not been received. Is this an acceptable practice? Why or why not?

Answer 1

Quickbooks is an accounting software which is mainly developed by Intuit to facilitate online accounting transactions like accepting business payments, managing and paying bills,payrolls functions, preparing accounting reports.

All the companies worldwide practices either cash based accounting and accrual based accounting.

In Cash based accounting the revenues are recorded when the cash is actually received from the customers and expenses are recorded when the payments are made to the suppliers and employees.

In Accrual basis of accounting, revenues and expenses are recorded when they are incurred.

Quickbooks follows the accrual based accounting where all the income earned which is actually incurred are recorded in that accounting period. The timing of the cash flows against the said invoice number does not matters in this situation.

The matching principle in Generally Accepted Accounting Principles states that all the revenues and expenses should be recognized in the same accounting period.

Therefore, It is an acceptable practice and holds totally correct according to GAAP.