Question

1. What are the differences between ITEMS and ACCOUNTS?
2. What are the two primary Reports in QuickBooks (financial statements)?
3. What is the difference between accrual and cash basis?
4. What is the difference between Entering a Bill (and Bill Payment) and writing a check?
5. What is the Undeposited Funds Account?

Answer 1

1. An item refers to the individual product/service or transaction entered into by the business such as adding an item to the products list or the services list provided/sold by the business.

Whereas an account refers to a summary of all the items and transactions entered into that account. For example, a purchase account will contain a summary of all the purchases made of items during a particular period.

2. The 2 primary reports in QuickBooks are as follows:

a) Summary Reports: As the name suggests, this report gives you a summary of the transactions or provides you information regarding the input entered such as customers, sales. purchase etc.

For example : "Accounts Receivable Summary Aging Report" will provide you a bracket-wise summary of the amounts due from the customers.

b) Detail reports: These are a further elaboration of the summary reports, i.e., it does not provide the information in the summary form, rather it provides you the transaction/item wise information.

Continuing the example from above, Accounts Receivable Detailed Aging report will provide you an invoice-wise and bracket-wise details of the amounts due from the customers instead of just showing the total amount due from the customer.

3. Accrual basis refers to when the revenue and expenses are recorded in the period to which they belong and in the period in which they are "earned" or incurred".

Whereas cash basis refers to when the revenue and expenses are reocrded in the period in which "Cash" has been either "received" or "paid".

For Example: Rent paid $1200 on 1st December, 2020 for 12 months. Now in accrual basis rent for only 1 month , i.e., $100 will be recorded since only 1 month belongs to this calender year, however in case of cash basis, the whole $1,200 of rent will be recorded since the whole expense has been paid in cash in the current year irrespective of the period for which it has been paid.

4. Difference between entering a bill and writing checks is that entering a bill does not mean the amount is due, it may be due 30 days from the bill date or any other time period as mentioned in the bill. However writing a check means that the other party will get their payment as soon as they decide to encash the check. It means that we no longer have control over when the payment is to be made it is completely dependent on the other party.

5. Undeposited funds account is nothing but a temporary account created for internal accounting purposes in QuickBooks to hold the money untill it is deposited into the Bank account. The basic purpose is that you can keep the money in this account when you receive a payment from your customer until it is deposited.