 In this presentation, we will make a reversing entry related to accrued interest time to engage with sage 50 cloud accounting Here we are in our get great guitars file We're gonna start off by opening up our reports going to the reports drop down looking at those financial statement reports We want that balance sheet report. So we're gonna double click on it so we can get it We're gonna have period two. That's gonna be February. So we'll start off there gonna say, okay And there is our report now You'll recall in a prior presentation that we had an adjusting entry related to the Interest payable accrued interest in other words if we go to our loan document We looked at our loan dot document over here And we saw that this this loan isn't going to be paid back to the end of five periods or six periods six months that is and after the first month we owe 250 and therefore we had incurred it just like if we incurred rent and we hadn't yet paid it so we had to do an Adjusting entry to record the fact that we had a payable of the interest payable and the interest expense on the other side of things Now we're gonna reverse that now just a quick caveat here to the reversing of this entry Note that we could have had the same kind of thing happen on this loan It just depends on when you know how much of the interest was accrued where we pay it monthly, right? So we paid the loan the loan monthly we might have some accrued interest And you can have the similar process and the reason I point that out I'm gonna go back to this loan is That if you have the reversing entry, it's the same kind of thing with the reversing entry I want to make it as easy as possible on the the difference between the accounting department and the adjusting department So in other words if I put in accrued interest here And then the accounting department had to make a normal type of loan payment and now they got this accrued interest on the books Well, it's already made it complex Let's go back over here and just imagine this situation where I had you know this kind of loan the more standard kind of loan well then you'd have to make the loan payment and then you'd have part of the interest which is on the balance sheet and then part of the Interest that might be in the current period that you'd have to record and then the principal reduction You made an already kind of complex type of transaction for the accounting department more complex and just writing a check more difficult And that's what we're gonna try to avoid so we're gonna say okay Well, let's just reverse all the adjusting entries so that when the loan payments made let's just go back on to this example Then they could just do it according to the amortization table and they don't have to think about you know The accrued interest thing that's gonna be the general idea now just note on this loan It's not the same kind of standard loan because we're not actually gonna pay it off until The end of six months and you're gonna pay the entire thing off So in this case it may not be beneficial to do the reversing entry because it's not gonna be something paid off till the end of The process, but I just want to give an example of Of the reversing entry so that it's gonna be something that the loan balance the accrued interests Could confuse things if the payment was to come up And this it could still confuse things if it wasn't to come up We're just gonna say hey We're gonna do the accrued interest as the end of the period Then we'll reverse it as of the end of the next period and then we'll make an adjustment You know each time as of the end of the period to record the accrued interest So this is what the reversing entry would be like if we go back on over We're gonna say then That we're gonna enter a reversing entry and let's just look at the the actual entry we put in place first if I go to this this 250 And double click on this entry what happened this is the actual entry we put in place We're just gonna simply reverse it exactly as of the first day of the next period that being March 1st So i'm gonna close this back out and then close this back out and then we're gonna go back to our Over here to our information and then i'm gonna go to the tasks Drop down so we can go back to our journal entry in this format and then go down to the journal Of the general journal entry now the general journal entry is going to be as of the first day of the following time period So it's going to be as of March 1st. So i'm going to go to March First and we'll pick up that date and i'm just going to simply reverse exactly what happened similar processes last time I'm not going to reverse the order of the account. I'm going to put 705 5 Which is the interest expense. I'm going to put that on top even though i'm going to credit it Because i'm going to reverse it exactly and that's going to be the 250. I'm going to put the description of a reversing entry And then i'm going to put the other account, which was 2420 wasn't it was 24 something i believe let me just Double check it here. Well, let's go ahead and find it. I'm going to scroll down. It's going to be The payable account. So there it is the interest payable 2410 2410 that's going to be the debit of the 250. All right, let's record this. I'm going to say save And there we have it. We're going to close this back out. I'm going to go back into the balance sheet report going into the balance sheet report and Scrolling down to the liabilities section. It's still there as of the end of february Now let's go to march. So i'm going to go back up to the options up top And we're going to change the time period to March let's go to the range And i'm going to make this march 1st to The 31st first to the 31st Okay, and now it's gone. So you can see it disappeared. Let's go to the other side the income statement This is going to be a little funny looking on the income statement And so i'm going to go back on over and open up the income statement And let's look at it first for February i'm going to remove these tick marks. I don't need the zero balances And there it is now the interest is included in The interest expense this 846 now. Let's change the date to march So i'm going to select the cog up top to do so We're going to pick the range. I'm going to change this to march march 1st Through march 31st and then say okay And so now all we have is this negative interest Expense and again that that will look funny because you wouldn't have a negative expense now. Normally it would wash out Once you make the payment. So once I made the payment and again, I think it's easier to see actually with this loan Are you right? Once I made the payment if I was to record all the interests to to the To the expense account then the two would net out and it would be correct at that point in time Would we look at this loan that actual payment's going to happen at the end of of six months? So if I was to make the payment At this point then The the normal process of making the payment would be to credit cash for the the 51 519 and then to Reduce the loan balance, which is going to be on the books for 50 000 And then the difference just go to the interest expense, which would be 1 519 would go to interest expense, but I'd have to worry about that payable Well, if I reverse the payable, I don't have to worry about it And then it'll take that 250 and apply it back to the prior period In in the proper format. So again, it wouldn't really happen in march. However, so if I was if I was to to Do this process in march Then it's not going to happen in march not going to happen for this particular loan until after six months So just remember on this particular loan it may not be necessary to do the reversing entry But just want to give a an example of what that reversing entry would look like So I'm going to go back on on over. So there's the 250 and again, it would look funny until Until the actual payment was made and then it would be proper would net out In the proper at that point in time. So that's going to be it for now. Let's get out of here