What I sometimes do here is pretend the invoice was paid. Cash will be overstated, of course. But then you input a dummy check for the same amount. Post that dummy check to the same P&L account (likely Sales) that the credit in the original A/R entry was posted to. And then when reconciling the bank statement, click-off both the dummy deposit and the dummy check and you should be in balance.
Upon reviewing your financials, you will find:
1) The Receivable has been eliminated.
2) Cash basis Sales will be increased for the dummy receipt. But cash basis Sales, owing to the dummy check, will also be reduced. Thus, the cash basis impact on Sales, and the cash basis P&L in general, will be neutral, which is what you want.
3) On the accrual basis, Sales will take a hit (debit) for the dummy check. Effectively, you have debited Sales instead of Bad Debts Expense (BDE). If you don’t like this, you could post the dummy check to “Bad Debts Expense.” That will make your accrual P&L accurate. On the cash basis, however, the BDE will show up as a BDE. When preparing the cash basis tax return, you would simply net that against Sales…and this is proper, because cash basis Sales are otherwise over-stated, owing to us pretending the invoice was paid.
I find that the above method is easiest to explain to clients, that’s why I use it. As a general proposition, you don’t want to be making journal entries in QB’s to A/R and/or A/P.
