How are accrual basis accounting books converted to cash basis books?

Here are a few examples of adjustments that would be made to your P&L and Balance Sheet in order to convert from accrual basis to cash basis for tax preparation:

Accounts Payable

• eliminate the # from your Balance Sheet, subtract it from your expense accounts that the corresponding A/P bills were entered to

Accrued Expenses

• eliminate the # from your Balance Sheet, subtract it from the corresponding expense accounts that the accrued expense was accrued for

Customer Deposits (Unearned Revenue)

• eliminate the # from your Balance Sheet, add it to your Sales account b/c you have collected this cash already from your customer. (i.e. your customer paid you in advance)

Accounts Receivable

• eliminate the # from your Balance Sheet, subtract it from your Sales account b/c you haven't collected that cash yet

Accrued Revenue

• eliminate the # from your Balance Sheet, subtract it from the Sales account b/c you haven't collected that cash yet

Inventory

• eliminate the # from your Balance Sheet, add it to COGS (*if the small business exception was made)

Prepaid expense

• eliminate the # from your Balance Sheet, add it to your expense accounts that the expense was prepaid for

Reference:

Helpful website: How to convert accrual basis to cash basis accounting