Troubleshooting Adjustment for Deferred Income (ADI) and Adjustment for Deferred Expenses (ADE) on Cash Basis P&L Reports
Table of Contents
Goal: Use this checklist when a Cash Basis Profit & Loss shows Adjustment for Deferred Income or Adjustment for Deferred Expenses and the customer wants to know where the amount came from.
Before you start
- Run the same date range on both Accrual and Cash Profit & Loss reports.
- Run the Balance Sheet and Trial Balance on Accrual basis when tracing linked account movement.
- Export reports to Excel or tab-delimited text whenever possible. PDF is fine for viewing but poor for reconciliation.
- Break the Cash P&L out by month. The month with the largest ADI or ADE usually points to the cause.
- Remember that ADI and ADE are report accumulators, not General Ledger accounts.
Quick read: what the signs mean
| If the line is... | Common meaning | Common causes |
|---|---|---|
| Positive ADI | Adds to income | Payments received now for older invoices; converted/opening A/R collected; customer deposit transfers. |
| Negative ADI | Reduces income | Current-period invoices not collected by report end; Accounts Receivable increased. |
| Positive ADE | Adds to expenses | Payments made now for older bills/liabilities; old payroll/tax/payable balances cleared. |
| Negative ADE | Reduces expenses | Current-period bills/liabilities/tax/payroll accrued but not paid or cleared by report end. |
Reports Needed
| Report | Basis | Why you need it |
|---|---|---|
| Profit & Loss by month | Cash and Accrual | Find the month creating most of the ADI/ADE. |
| Balance Sheet | Accrual | Shows ending balances in linked control accounts before cash-basis conversion. |
| Trial Balance | Accrual | Shows account movement and helps identify linked account changes. |
| Account Transactions / General Ledger Detail | Accrual report detail | Shows debits and credits by account and source journal. |
| Invoice Transactions / Customer Ledger | N/A | Shows customer payments and which invoices they were applied to. |
| Purchase Transactions / Supplier Ledger | N/A | Shows supplier payments and which bills they were applied to. |
| Tax Detail Cash and Tax Detail Accrual | Both if available | Helps explain sales-tax timing inside ADE. |
| Linked Accounts and Tax Code List | Setup review | Confirms which accounts AccountEdge is using for receivables, payables, tax, payroll, and deposits. |
Troubleshooting ADI
ADI is usually tied to Accounts Receivable, customer payments, customer deposits, or linked accrued asset accounts.
- Find the month. Run the Cash P&L by month and identify which month creates most of the ADI.
- Check Accounts Receivable. Run Account Transactions for Accounts Receivable for the report period.
- Look for prior-period invoices paid now. In Invoice Transactions or Customer Ledger, filter for payments received inside the report period that were applied to invoices dated before the report start date.
- Check current-period unpaid invoices. If ADI is negative, current-period sales may be unpaid at report end.
- Review historical/conversion invoices. If the company converted from another system, open A/R invoices may be allocated to Retained Earnings, Opening Balance Equity, or another setup account.
- Separate non-income parts. Sales tax, tips, customer deposits, finance charges, clearing accounts, and other non-P&L portions may keep the ADI from equaling the gross customer receipt total.
ADI troubleshooting formula: Prior-period invoice payments received in this report period - non-income portions of those receipts - current-period invoice income not collected by report end +/- customer discounts, credits, refunds, deposit transfers, and linked asset-account timing = ADI
Troubleshooting ADE
ADE is usually tied to Accounts Payable, Sales Tax Payable, payroll liabilities, supplier deposits, or linked accrued liability/equity accounts.
- Find the month. Run the Cash P&L by month and identify which month creates most of the ADE.
- Check linked liability accounts. Run Account Transactions for Accounts Payable, Sales Tax Payable, payroll liabilities, supplier deposits, and any other linked payable/tax/payroll accounts.
- Do not stop at Bills. ADE can appear even if there are no Purchase Journal bills. Sales tax, payroll liabilities, deposits, or converted/opening liabilities can create ADE.
- Compare tax reports. For sales tax questions, compare Tax Detail Cash to debits/clearings in Sales Tax Payable.
- Look for prior-period bills paid now. If ADE is positive, supplier payments may be clearing older bills or opening A/P.
- Look for current-period unpaid liabilities. If ADE is negative, current-period expenses, sales tax, payroll, or payable balances may not have been paid or cleared by report end.
ADE troubleshooting formula: Prior-period bills/liabilities paid or cleared during this report period - current-period bills/liabilities/taxes/payroll not paid or cleared by report end +/- supplier discounts, debit settlements, refunds, deposit transfers, payroll, and linked liability/equity timing = ADE
Special case: ADE with no Bills
If the customer says, “We did not enter any bills, so why do we have deferred expenses?” check Sales Tax Payable and payroll/tax liabilities before assuming the report is wrong.
Sales tax ADE check: Sales Tax Payable debits/clearings during the report period - cash-basis sales tax from Tax Detail Cash = sales-tax timing portion of ADE
Why: A Sales Invoice can credit Sales Tax Payable. That means a Sales Journal transaction can create linked liability activity that later appears in ADE.
Special case: ADI after conversion
If the company recently converted from another accounting system, prior-period invoices may have been brought in only to establish open A/R. Those invoices may not behave like normal current-period sales invoices.
Conversion/open A/R ADI check: Payments received during the report period on invoices dated before the report period - non-income or setup portions = prior-period A/R portion of ADI
Tip: Review the original historical invoice. If it uses an equity/opening-balance style account rather than a normal sales income account, the cash-basis report may route the payment effect through ADI.
Linked account review
Check Setup > Linked Accounts and tax/payroll setup. AccountEdge uses the linked accounts selected in the file. It does not verify that the linked account is the “right” account for the business.
- Accounts Receivable / Trade Debtors
- Accounts Payable / Trade Creditors
- Sales Tax Payable and tax collected/paid accounts
- Payroll liabilities and payroll deduction payable accounts
- Customer deposits and supplier deposits
- Foreign currency equivalents, if applicable
General rule of thumb
Cash Basis reports do not simply ask whether an invoice or bill exists. They also look at whether cash was received or paid and how linked accounts such as Accounts Receivable, Accounts Payable, Sales Tax Payable, payroll liabilities, and deposits changed during the report period. ADI and ADE are the report-only lines AccountEdge uses to convert those accrual balances into cash-basis results.
When to escalate
- The linked accounts are correct, but the report cannot be reconciled after reviewing monthly P&L, account transactions, tax detail, and invoice/purchase payment application reports.
- The Cash P&L and Cash Balance Sheet do not agree for the same period after normal rounding differences.
- There is a large ADI/ADE amount but no linked account movement, no prior-period payment activity, and no current-period unpaid activity.
- The report changes unexpectedly after changing unrelated report options.