Why Is My Income Overstated?

The Mystery of the Overstated Income

“I know I didn’t make this much money,” my new client said today, staring at his Profit & Loss (P&L) statement. “This report doesn’t show the bills I haven’t paid yet.”

If you run your business on a cash basis, that statement is spot-on. But if you’re running your P&L on the Accrual Basis—as this client was—unpaid bills should absolutely be factored into your financial picture. An Accrual P&L is designed to show your revenue earned and expenses incurred, regardless of when the cash actually changes hands.

So, why was my client’s income looking inflated? That’s when we went down the rabbit hole.

The Missing Piece: Entering Bills

My first instinct was to check the books. I asked him to give me the name of a vendor he owed money to and then checked the corresponding expense account (in his case, “Subcontractors”). I was looking for Bills—the transactions that record an expense before it’s paid—but I couldn’t find a single one.

Next, we pulled up the Accounts Payable Aging Summary. This report shows all outstanding bills owed to vendors. The result? Zero.

It turns out, he wasn’t entering his bills into QuickBooks at all. He was simply waiting until he paid a vendor and then entering the payment, which only records the expense on a Cash Basis.

The Solution: Using the ‘Bill’ Feature

If you are running your reports on the Accrual Basis, the “Create Bill” feature in your accounting software is essential.

Here’s the breakdown of why this simple step changes everything:

1. Correct Expense Timing: When you receive a bill, entering it immediately records the expense on the P&L (debits the expense account) and simultaneously creates a liability on your Balance Sheet (credits Accounts Payable). This instantly provides an accurate, lower, and more realistic view of your current profit.
2. Accurate Payables: Your Accounts Payable report now accurately reflects who you owe and by when.
3. Better Cash Management: You know exactly how much cash you’ll need for upcoming obligations.

🤯 Next-Level Time Saving: Vendor Email Automation

After showing him how to manually enter a bill (we used a fresh PDF invoice he’d just received), he was already thrilled. But we didn’t stop there.

I showed him the ultimate time-saver: QuickBooks has a unique email address assigned to your account.

• How it works: Give this unique email address to your vendors.
• The Benefit: When they email their invoices to you, the attached PDF automatically uploads the bill into QuickBooks. The software can often use optical character recognition (OCR) to pre-fill most of the details—saving you a significant amount of data entry time.

Final Takeaway

If your P&L seems “too high” on the Accrual basis, the first place to look is your Accounts Payable. Make sure you are using the Bill feature to correctly log expenses the moment you incur them, not just when you pay them. It’s the key to accurate reporting and smarter business decisions!