 QuickBooks Online 2022, adjusting entry related to unearned revenue or customer deposit. Get ready because it's go time with QuickBooks Online 2022. Here we are in Albert, Gitcrate Guitar's practice file we set up with a 30 day free trial. Holding down control, scroll it up a bit to get to the 125% currently in the home page, otherwise known as the get things done page in the business view as compared to the accounting view. If you wanted to change to the accounting view, it's something you can do by going to the cog up top, switch to the accounting view down below. We will be toggling back and forth between the two views, either here or jumping into the company or sample company file currently in the accounting view. Back to the Gitcrate guitars, we're going to open up a few tabs to put reports in. By right clicking on the tab up top, duplicating that tab back to the tab to the left, right click again, duplicate again, back to the tab to the left one more time, uno vase mas, right click and duplicate. As that is thinking, we're going to jump back on over to the sample company file, just to note where the reports are located in the accounting view on the left hand side under reports. If we're in the business view, we're going to be located in the business overview and then in the reports, we're going to be in the, I'm going to close up the hamburger up top, the standard tab over here. We're going to open up the trusty balance sheet, the big balance sheet. Do the range change up top from 010122 to 022822, 0228 being the cutoff date. Let's hit the drop down so we can see the month by month side by side and then run that report. Going to the tab to the right, we're going to go to the business overview on the left into the reports, closing up the hand buggy, going down to the profit and the loss. Let's do the range change up top from 010122 to 022822 and then change that to the month so we can see the side by month side and run that report. And then we're going to go to the tab to the right, do this one more time with the business overview into the reports, close on the hamburger and do a search for the trial balance, the trusty T to the B, trial balance and then we're going to go up top and do the range change from 010122 to 022822 and run it. So there we have it. Let's go back to the first tab and we're focusing in this time on the accounts receivable and the unearned revenue. Now note as we did the unearned revenue, we did it a little bit different than if you're used to accounting in a book type of problem that you will see it in a book type of problem due to the logistics that are in the accounting software that being the sub accounts related to the accounts receivable to be formatted properly and be easily integrated as we enter the invoices and the prepayments, something that's a little bit more difficult to do if we're using another account other than the accounts receivable accounts such as the unearned revenue account. So let's recap that real quick before we go into the adjusting entry. If I go into our flow chart over here and the flow chart is from the desktop version, but it's just a flow chart with the same form so we can get an idea of what is happening. We have certain types of industries where if we if we think about our types of industries with regards to the flow of the revenue cycle, some industries such as the CPA firm typically a law firm for example will have to invoice their client after they do the work and then they're going to receive the payment possibly putting it into a clearing account at that point and then making the deposit that will of course be driven by the type of industry that you are in. Some industries however might be having a cash register situation where we get paid at the same point in time that we do the work so we basically get that money here and then we make the deposit possibly going through that clearing account again so that we can deposit it into our system in the same format we expect to see it on the bank statement but you could have some industries that are a little bit more unusual where we have to receive payment we get the money first before we do the work so now we got the money before we do the work and we're going to actually invoice them after we have already received at least some or possibly all of the money upfront or or possibly we're going to be doing the work at a future point in time so this could happen in types of industries which are becoming more common these days if you're talking about a type of industry like an application industry of magazines selling magazines and newspapers of the classical type of example but in those industries you're always going to get you're always going to get the money first so in those cases if that's always the case then you're basically going to say I need the money upfront and then and then you're going to issue them the work then you're going to do the work later and as you do the work you're going to decrease the the unearned revenue in other words classically the way that you would record that if all your revenue is coming in in advance of you doing the work because you're in a subscription model for example then the classical way you would do that from an accounting standpoint is is to say I'm going to get the money increase cash the other side is going to go into a liability account called unearned revenue or something like that because you didn't actually earn the revenue yet even though you got the money and then periodically at the end of the month or year you're going to decrease some of that unearned revenue and record the revenue as you have actually earned the revenue that's the classical book kind of problem that you would have for the unearned revenue however that unearned revenue account causes some problems when you're trying to track the customer information in accounting software because the customer information is tied to typically the accounts receivable account not the unearned revenue account and we could have other kind of situations where you get the money upfront such as a rental situation where you get where you get basically the last month rent or something like that or a security deposit which is similar upfront which you can't record as revenue because it's something a liability until you pay it back and in our case we had a situation where we're going to have large items that we're going to be providing possibly custom items we want to get a deposit upfront that we can then lock the person in or make sure that they're committed to the engagement to the sale and then at a later point in time we will invoice them in that instance we've got the receipt payment happened up front and then we have the invoice that's going to happen later and what we want to do in that case is still be able to tie out the receive payment and the invoice which is much more difficult to do if we're outside of the accounts receivable account using an unearned revenue when we get the initial payment therefore from a bookkeeping perspective you will often see the use of the receive payment form that I can then tie out which will automatically apply what they call the credit to the invoice at a later point instead of doing the formats to have the unearned revenue account because it works logistically quite well with regards to the sub account the problem is that you end up with a negative receivable instead of a positive liability which is not correct for reporting purposes to be able to be in alignment for the accounting process which is to do things efficiently this method often being preferred by bookkeepers because it's it's sufficient for their documentation reporting internally tracking everything within the accounts receivable which is what we would like for the customers would be good and then doing the periodic adjustment which is which is the use of the periodic adjustment is to shore things up from what works good logistically on the bookkeeping side to what is exactly correct from the financial statement point of side from that perspective this is a standard adjusting entry that you can apply it like any other it's a little bit different though then then the classic adjusting entry because in this case unlike the the like classic way that you would have unearned revenue in a book problem which would have a balance sheet an account in an income statement account this one does not have an income statement account we're just going to remove it from we're just going to take a negative liability or positive a negative asset and make it into a positive liability so just take a look at that a little bit further we're going to make one more report here which is going to be the sub report of this accounts receivable I'm going to go to the tab to the right to do so right click on it duplicate this tab and we want to look at the accounts the accounts receivable or customer detail report so we'll go to the reports on the left hand side we're going to close up the ham burger and I'm going to hold control scroll down a bit to get to the one two five percent scrolling down to who owes you money and I want to get down to the customer balance detail let's go into that customer balance detail report going up top and doing a customization let's make this on 0 to 28 22 and run it so there we have it let's also look at the details so I can see the payments involved I'm going to customize it to do that go into the filters and then I'm going to say I want to see the AP for all the AP all the AP that's what we want run it so there we go so now we can see the detail in it if we go to the bottom of this report it's the 5599 which ties out to the balance sheet or should on the accounts receivable let's do that one more time it doesn't what what happened here that's not the bottom of the report it's 22 701 50 is the correct number which should tie out over here to the 22 701 50 on the accounts receivable and it does let's go back on over now the issue is that if we have some of these deposits outstanding that we didn't get paid on we're going to have these negative numbers within that particular customer or any kind of number here that is a payment that isn't connected to an invoice is going to be basically an issue so we want to take those we want to take those and increase the accounts receivable because you can't have a negative accounts receivable because that would mean that I would owe Eric music which means it's not an asset it's flipped over to a liability so instead of having a negative asset I should have a positive liability for those items so all I'm going to do is go through here and pick up these items that have these negative amounts and we'll just fix them on a periodic basis for the reporting purposes and note the reason again that you want this internally oftentimes is for example like Anderson up here I believe had a situation where they got this payment that they that they then implied to the invoice that they had later giving that the balance that is still due and that's what you would like to see internally these two forms connects together even though the payment had happened first you've got that nice connection between the forms and everything's being tracked internally so that works out good now this one has already been we already issued the invoice to apply out to the payment therefore we don't have a problem however if we collected a deposit and we had not yet issued the invoice then those are the ones that we got these negative amounts that will will be a problem so let's take a look and see if we can find some of them here we'll just we'll just go through this and say all right there's a negative 200 right there for Eric music so 200 there and are there any others here there's a 250 that we have for Sam the guitar man so plus 250 that we're gonna have to adjust for I think that is it everything else I think washes out well so so now I'm gonna I'm gonna increase the accounts receivable for that and create for reporting purposes the liability account of unearned revenue for that amount but to do that I need to be careful because I'm gonna be using the account of the accounts receivable account and that means they're gonna force me QuickBooks will force me to use some kind of customer as I record it I would this is one area I kind of wish they didn't force me to use a customer because I don't want to mess up the accounting department's customer information however it's kind of nice that QuickBooks does force us to do that because that means it's a lot more difficult for our sub ledger reports to get out of balance out of whack from what's on the balance sheet so that's where we can either do two things if I don't want to mess up their their customer detail at all I could make another account which is an accounts receivable to account or an accounts receivable adjusting account for example but not created as an accounts receivable type account but rather a other current asset type of accounts so that I can just record to it without having a customer without messing up the customer detail but it's a little bit more messy for reporting purposes or I can then try to make a customer that will be out of their way in other words I'm not going to report this to Sam the guitar man even though that's the customer that it's related to because I'm just trying to get the financial statements correct and I'm gonna reverse it in the following period so maybe I'm gonna make another customer called ZZZ adjusting entry that we have seen before just to put all of our adjusting entries into this customer at the bottom of the list which hopefully won't mess anyone up so that's gonna be our strategy let's go to the first tab to do this now now there's only two accounts that are gonna be affected but it's using that customer account which makes it a little bit more complex so I'm not gonna use a register to do it I'm gonna go right to the journal entry going right to the journal entry to do this one and then I'm gonna make this one as of the cutoff date 0 228 22 that's the cutoff date 0 228 and then hopefully I have these two accounts because I'm in the business view and I don't want to add any new accounts in here cut for the business view so this is going to be then we're gonna have a debit and a credit we're gonna have to increase the unearned revenue so we're gonna say this is gonna be a accounts receivable is gonna go up accounts receivable accounts receivable accounts there it is AR accounts receivable is gonna go up by the 450 the sum of the two deposits I'm gonna apply them not to each customer because I'm not trying to fix the sub ledgers I'm trying to get the financial statements reported properly so here I'm gonna say that this is gonna go to my ZZZ adjusting entry area so it doesn't mess the sub ledger up I gotta put something there or QuickBooks won't let me post it and the other side's gonna go to unearned revenue unearned revenue did we see there is an under good we've got that one I don't have to add it so QuickBooks whenever I add stuff that's when QuickBooks tries to drive me crazy with this business view the other view works fine but any case we're gonna say this is gonna be an adj entry let's just call it that we might want more detail you could put for because of you know negative accounts receivable deposits that we're adjusting out or something like that would probably be good but I'm not gonna do that now I'm just gonna do that just gonna put this in place just like it is let's save it close it and see if it does what we would expect it to do let's go back to the balance sheet and say did you do what we want what we expected you to do journal entry that's what we're asking so I'm gonna go down to the accounts receivable and let's drill down on it to get to the detail of it holding controls scroll down a bit scroll down scroll down we're gonna go down here and say we've got the journal entry so there it is on the 450 so there is our adjusting entry if I go into it and drill back down on it then we get of course to the journal entry and closing this back out going back up top the other side is not going to an income statement account you'll note but rather it's going to a balance sheet account that's why it's a little bit different than most adjusting entries a classical adjusting entry will have a balance sheet account and an income statement account affected in that instance or in that way this adjusting entries a little bit different but it's the same to other adjusting entries in that we're doing something that we think works well logistically on the bookkeeping side of things that we need to make a little tweak on at the end of the month in order to make the financial statements properly reported so I'm going to go down and say we should have an unearned revenue account down here we do there it is there's the 450 on this side going into that one and it looks good MUI BN B to the N MUI BN so that we've got that okay so that one looks good if we go to the sub ledge over here for the accounts receivable no impact on the income statement let's run this thing just to make sure that everything has been updated the way it's supposed to and so we didn't we didn't go back into the sub ledge and and remove these these negative amounts but instead we created another item down below for the ZZZ adjusting entry because I'm not trying to get this sub report to be exactly right because I'm not reporting the sub report externally I'm trying to get the financial statements correct and not mess up the sub report so that so that the accounting department doesn't deal with problems when they go back to the accounting department because of our adjusting entries so now it still ties out to the 23 151 50 if I go back to the balance sheet we still have in the AR R the 23 151 50 so that looks good there and then what we're gonna do afterwards is reverse this because again I don't want to we did this what the accounting department is doing works well for the accounting department it's just got this timing difference that we're going to have to deal with with a negative receivable and a positive liability so I'm just gonna change it back with a reversing entry so it doesn't mess them up however when I do that we're still gonna have this detail here which we tried to minimize the burden to the accounting department by creating this other customer down below so in other words if they go back to the first tab the accounting department will typically be working in the accounts receivable cycle by going into the get paid paid area into customers if you were in the accounting view that would be in the sales area and into customers and if I close up the hamburger my adjusting entries I think one of them went to Sam the guitar man for example if they were to go into Sam the guitar man close up the hamburger then I'm not gonna see in the detail with Sam called up and said hey I got this question about this invoice or this payment I made or the sales receipt or something like that we're not gonna have this other stuff in there that's gonna have these journal entries that's gonna mess up the accounting department they're gonna be like I don't know that it looks like the adjusting entry department did something funny to your account here maybe they did something we don't want that kind of kind of thing to happen and therefore we tried to put it down in the adjusting entry area so it doesn't impact the actual customer but still allows us to fix the financial statements since QuickBooks forces us to use a customer even with an adjusting entry so that the subledgers are not out of balance from the what is on the financial statements so that's the objective now if you don't want even this over here to to mess up the accounting department you could try to add another account going back to the balance sheet for the accounts receivable that will be like a an adjusting account however you might not want to put it as an accounts receivable type account therefore you can't really make it a sub account as easily as we did down here with with you'll recall the sales tax payable we made this little sub account so that it didn't mess up the actual account up here doesn't mess up the widget or anything that's being used with sales tax you can't really do that up here with an accounts receivable because you don't want to make it an accounts receivable type account because it then it's still gonna force you to use a sub ledger so if I create another account I'd have to put it down here and other current assets therefore you'd have these two accounts that you'd be dealing with it you'd have to net together if you were to make the reports externally if you were going to then export these reports and do some work in Excel to kind of combine those accounts together not a problem that might be the best way to go but if you're trying to just generate the reports internally in QuickBooks it's going to be a little ugly to do that way although it would be nicer on possibly the accounting department because you're not going to have to add any subcustomer or anything at all and that would be that's generally better for the general accounting process for the bookkeeping and accounting side of things as opposed to the adjusting side okay let's go to the trial balance and see where we stand at this point in time we will do a reversing entry shortly and let's just run this as of the cutoff date 228 if you're tying out to what we have here and that's great if not then try changing the date range and we'll be running a journal report at the end so that you can check and diagnose any differences