1. Understand the Core Difference

Accrual Basis P&L: Shows income and expenses when earned or billed, not when money moves.

• Invoices = income, even if unpaid
• Bills = expenses, even if unpaid

Cash Basis P&L: Shows income and expenses only when cash actually moves.

• Customer pays invoice → income
• You pay a bill → expense

Your bank balance and cash flow reflect cash basis, not accrual.

2. Switch P&L to Cash Basis

1. Go to Reports.
2. Open Profit & Loss.
3. At the top, select Accounting Method → Cash.
4. Run Report.

This version should match your cash movements in bank accounts if your data is correct.

3. Why Cash Basis P&L May Still Not Match Actual Cash Flow

Even in cash basis, differences occur due to the following:

• Transfers and Loan Payments: Cash moving between accounts is not income or expense (e.g., checking → savings, credit card payments, loan principal, owner contributions/draws).
• Loan Payments: Only interest appears on P&L; principal does not.
• Asset Purchases: Cars, equipment, computers, furniture are balance sheet assets, not P&L expenses.
• Owner Withdrawals: Owner draw or distribution reduces cash but does not appear on P&L.
• Prepaid Expenses: Bills paid later may cause differences on cash basis P&L.
• Undeposited Funds: If sales are not deposited, cash-basis revenue is delayed.
• Credit Card Expenses: Appear in P&L only when the card is paid, not when the charge occurs.
• Customer Deposits / Retainers: Should be recorded as liabilities, not income, to avoid early recognition.

4. How to Make P&L Closely Match Actual Cash Flow

1. Run P&L on Cash Basis: Reports → Profit & Loss → Cash.
2. Run Statement of Cash Flows: Reports → Statement of Cash Flows. Compare net income vs actual cash movement.
3. Reconcile all bank and credit card accounts.
4. Fix items incorrectly hitting P&L: asset purchases, loan principal, owner withdrawals, transfers, personal expenses, duplicate expenses from bank feed + bills.
5. Ensure all deposits go through Bank Deposit properly; avoid Undeposited Funds issues.
6. Ensure credit card payments are split between principal (Balance Sheet) and interest (P&L).
7. Review suspense accounts: Uncategorized Income, Uncategorized Expense, Ask My Accountant, Opening Balance Equity.

Key Takeaway

To match P&L perfectly to cash flow:

• Use true Cash Basis accounting for all entries, or
• Convert entirely to Accrual Basis and monitor real-time cash separately.

P&L can only match actual cash if all transactions are categorized correctly and all non-P&L cash movements are accounted for.