 QuickBooks Online 2023, adjusting entry, unearned revenue, customer deposit. Get ready to start moving on up with QuickBooks Online 2023. Here we are in our GitGrid Guitars Practice file. We started up in a prior presentation using the 30-day free trial. We also have opened the free QuickBooks Online sample company to open the two at the same time you can use Incognito. Support Accounting Instruction by clicking the link below, giving you a free month membership to all of the content on our website, broken out by category, further broken out by course. Each course then organized in a logical, reasonable fashion, making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files, and more like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. Or another browser to open the Incognito window if using Google Chrome, select the three dots in the browser, Incognito window, type into the search engine, QuickBooks Online, Test Drive. We're using the sample company to compare the accounting view, the one get great guitars is in, and the business view, the one the sample company is in. To change between the two, go to the cog up top and switch the view down below. Duplicating some tabs to put reports in like we do every time. We're going to right-click on the tab up top to do it and then duplicate. And then we're going to right-click on the duplicated tab to duplicate the duplicated tab. Then we're going to go back to the first duplicated tab to go to the reports on the left-hand side, opening up the financial statement report of the balance sheet. If you were in the business view, by the way, the reports are in the business overview and then the reports on the left. Back to the accounting view, get great guitars, tab into the right, reports on the left, this time the P to the L, the profit to the loss, close in the hand buggy and change in the range from 010123 to 022823. We want to hit the drop-down to go to months and see it run it to refresh it side-by-side, Jan-Feb-Toked, tab to the middle, close in the buggy, change that range from 010123 to 022823. We'd like to hit the drop-down again for the months and run it to refresh it. That's the setup process we do every time. We are doing the adjusting entries. These are entries that are done at the end of the period, whether that be month or year. We have the cutoff date in our case of February 28. In prior presentations, we've been doing adjusting entries for the accounts receivable we looked at and we did fixed assets, prepaid insurance. Now we're going to look at a kind of unearned revenue type of transaction. Now with the unearned revenue, if you've learned like an unearned revenue adjusting entry from a book problem, it's going to be a little bit different in the format that we've done it here. So let's see if we can kind of describe it so we can understand the issue related to unearned revenue and how you might deal with that issue if you find it in the particular business that you are in or working with. So we're looking at the customer cycle here. This is just a flow chart at the end of the customer cycle. We're hoping that we have a deposit at some point from goods and services that we provided to a customer. Now there's different ways that that flow could happen. If it was a very simple system, we might just have deposits from gig work or something. We wait till it clears the bank, we record it as revenue with a deposit form using the bank feeds or we might be at a cash register in which case we record the revenue with the sales receipt form and then we deposit it or we might have an accrual system where we do the work first such as a bookkeeping, landscaping, law firm, then have to bill or invoice the client, track the accounts receivable, receive the payment, then make the deposit. Now then there's a more unusual kind of situation. All these situations you'll note that we do the work either before or at the same time that we get paid. What about a situation where we get paid before we do the work? We get paid before we do the work. How in the world would that ever happen? That happens in like a service type of situation where there's a subscription model. Used to be magazines and newspapers but now a lot of application kind of systems are set up in that format so you pay for a year's worth subscription or something like that and then they provide you the goods going forward completing your contract in the future. In that case you got the money before you did the work. So from an accrual standpoint, you're going to debit cash and the other side should go into a liability account instead of a revenue account because you haven't earned it and then periodically what we would do at the end of the month and year is determine how much of that liability account typically classically called under and revenue has been earned taking it out of the liability and putting it into a revenue account. So that's the classical adjusting entry for a book problem type of situation. Now there's other reasons that you might get the money first and it might happen in like a rental situation where you got like the last month's rent or like a down payment is a similar situation where you got money but you didn't do any work for it so it should be a liability rather than an income for the money that you received which might be called deposit or customer deposit or down payment or unearned revenue or in our case we have a situation where we're going to do a project or give a valuable piece of inventory and they're locking down the inventory having us hold on to the inventory for them by giving us a down payment to solidify the fact that they are going to complete the purchase. So once again we got the money before we did the work provide the inventory or do whatever kind of job that we are going to do. Now to enter that into the system again classically what you would do is you would say okay well if I got the money first from a debit and credit standpoint I'm going to debit or increase the cash and the other side isn't going to go into revenue yet it's going to go into some kind of liability account which would be called unearned revenue or customer deposit or something like that why a liability account and not revenue because we haven't earned it we owe them either the money back or whatever we're going to do in our case provide them with the guitar do the actual work that we were asked to do but if we put it in a liability account down here the problem is that I can't really track the customer detail in the customer center if I go to the customer center over here and I go down to the sales tab and I look at my customers on the left hand side and by the way if you're in the business view that's in the get paid and pay center and then the customers we saw this in like Mr. Anderson over here if I got paid first this is where we can track all the information we've got the invoices, we've got the estimates, we've got the sales receipts if I put something into unearned revenue it's not going to be in this customer center I can't apply a future invoice to the payment that's the problem that we were faced with now one way you deal with that which is quite common would be that you're just going to record the received payment before you make the invoice a received payment decreases accounts receivable and is tied to usually an invoice but this time we enter the received payment without tying it to an invoice resulting in what you might call like a credit to that customer account meaning an outstanding amount that we can apply to a future invoice for example and that results in a negative receivable as opposed to a positive liability like a positive unearned revenue account instead we have a negative accounts receivable so logistically that works quite well from the bookkeeping standpoint although it's not quite right from an accounting, debits and credits standpoint so in a classical adjusting entry format we can say hey look let's do what's best for the bookkeeper and we'll let them enter the transactions as a negative receivable then if there's any issues at the end for the reporting purposes that we need to adjust we will do an adjusting entry so that's normal kind of thought process for adjusting entry however it's different than the normal adjusting entry for unearned revenue which is that we would have to go in here and determine how much of the revenue has been earned and then record it as having been earned possibly looking at the subscription that has expired thus far through the process so it's a little bit different than that and it's also a little bit different than a classical adjusting entry because there's not going to be a balance sheet and income statement item these are both balance sheet items meaning we're just going to increase one balance sheet account which is the accounts receivable and then increase it as a liability down here instead of having an income statement and balance sheet account like most adjusting entries do to further think about this real quick the accounts receivable has a sub ledger account let's look at the sub ledger I'm going to go to the tab to the right right click on that tab and duplicate it and then we're going to go to the reports on the left hand side again and this time I'm going to close the boogie and scroll down to who owes you and let's look at the customer balance detail report and the customer balance detail report if I scroll down we've got a couple issues here here's one of the issues this $200 right here and by the way I should probably run this for a custom date as of 022823 and run it so that the total down here 2270150 ties out to the 2270150 in February and then I can scroll through here and say okay does anything look funny here this looks funny there's a $200 amount for Eric music that's just kind of outstanding that should be a liability there's no such thing as a negative receivable if it's a negative receivable it's a liability so and I have another one down here of 250 so those are actually decreasing accounts receivable when they should be a positive liability so if I had received the invoice if I had completed the transaction as I did with this example on Mr. Anderson where we had this situation where we got a $300 payment first a down payment and then we followed up and we issued the invoice after that after having issued the invoice it wouldn't be a problem anymore there's no more problem with the timing difference but if we are caught as of the year end or the period end in our case February 28 with this deposit that we haven't completed with an invoice to tie out to it then these are decreasing the accounts receivable and should be positive liability accounts so we can just do an adjusting entry I'm just gonna say alright no big deal notice that if you're doing taxes then if it's just a C corporation I mean if it's just a schedule C you might not even have to do this because you just really need to record the income statement type of things and this might not have an impact on the income statement but your other concept would if you had the unearned revenue that you're trying to determine how much of it had been earned in order to determine how much should be recorded as revenue and when do you have to record revenue on a tax based system and so on and that would have an impact but here these are two balance sheet accounts so it's not really gonna have an impact on the net income but if we need to do external reporting for like a partnership where they have to put a balance sheet on or an S corporation it has an impact and if we're making financial statements for external reporting it'll have an impact so we can just say okay I'm just gonna do an adjustment 200 plus this 250 I'm just gonna add those up I'm gonna increase the accounts receivable buy that and post the other side to unearned revenue account now when I do that there's a couple issues one issue is now I'm recording something to accounts receivable again and QuickBooks forces me to have a sub ledger related to it I don't want to post it to these two individual accounts otherwise it'll show up in their customer detail and mess up the accounting side of things and that's the whole point I don't want to do that so I'm gonna make up another customer called ZZZ which I'm just gonna put down at the bottom in a similar fashion as we did before with our other accounts receivable reports so hopefully this won't bother anybody down here and that's one issue we have to deal with and the other we gotta set up the unearned revenue account so let's go I'm gonna go to the tab to the left and I'm gonna go down to the accounting so I can go into my chart of accounts go into the chart of accounts if you're in the business view by the way business view by the way that's under bookkeeping and chart of accounts and we could enter this with a journal entry which I could hit the plus button enter a journal entry but there's only two accounts affected so I can also use a register remember that the income statement accounts don't have a register so I'll use a balance sheet account I can use either balance sheet account because they both have a register however the accounts receivable is kind of a little bit wonky sometimes because the because of its special need of the subsidiary account so that might kind of mess us up a little bit but I'm gonna try so what I'm gonna try to do is use the unearned revenue account which should be a liability account and see if I can use the register or if I have to go to a journal entry so if I go down here let's see if there is an unearned revenue here it is here's an unearned revenue if you don't have one you could set it up as another current liability account and so that looks good I'm gonna use the register and I'm gonna try to enter a journal entry a journal entry and I'm gonna make it as of 022823 which is our cutoff date for all journal entries and I think I'm gonna have an issue with this because it's not gonna let me enter let's try it I'll show you the problem ADJ ADJ entry I'll say just to show that it's an adjusting entry you might want to show the calculation or put more detail in the memos and hey look this is why I'm doing this to some degree so that like someone in the following year or yourself can remember what happened and I'm gonna be it's a liability account I'm gonna increase it by that 450 and then the other side is gonna go to accounts receivable accounts receivable AR now notice the problem I can't get into adding a customer to the accounts receivable so it's probably not gonna let me use this method to record it so I'm gonna try to do it I'm gonna say save and it says accounts receivable or accounts payable enter transaction so I won't let me do it if I go into the actual journal it won't let me open it so I think I'm gonna have to use an actual journal entry so I'm gonna cancel this and let's just do it with a good old debits and credits I'm gonna enter a journal entry and let's do it as of 022823 and we're gonna debit accounts receivable accounts receivable and that's gonna be for the 450 description adj entry and then the name this is what I was missing so I'm gonna put ZZZ remember I'm not putting the two customers that have the negative balance that adds up to that 450 because I don't want to mess up the sub ledger I'm just gonna mess up the sub ledger for ZZZ it's still an issue to some degree because now I've got this other customer with stuff in it and if I don't want that to happen I could make another account called accounts receivable and make it just for my adjusting entry but even then I couldn't set it up as an accounts receivable type account possibly because I'll still have a sub ledger related to it I'd have to set it up as an other current asset and therefore it won't be like right next to the AR it'll be down here in current assets so I'm just gonna use this method and try to hope that that's not in the way and it won't mess up the accounting department from their day to day stuff the other side's gonna go into unearned revenue unearned revenue there it is for 550 I don't need a name there and that's all I need to do this is gonna increase the accounts receivable the other side's gonna go to increasing the liability of unearned revenue no impact on the income statement let's save it and close it check it out go to the balance sheet run it and then the AR if I go into the AR we've got these two adjusting entries there's the 450 if I go into the 450 there's the journal entry form closing that back out back up to the top back to the balance sheet the other side's on the liability side and there's the unearned revenue there's the 450 there's the 450 so that looks good and if I go back on over there we have it so notice it's just a reporting issue instead of having a negative a negative asset we have a positive liability in this case it did in this format it doesn't have any issue it doesn't have any relevance to the profit and loss now if I compare that to the standard kind of book problem for unearned revenue where you have like all of your revenue coming from a subscription model business like applications or something like that or a newspaper business or a magazine business then you would have to record you would think all of your revenue possibly to an unearned revenue account it's all going to be going into unearned revenue and then you have to determine how much of that revenue you had earned meaning how many actually newspapers or how much actual access to the application did you provide lowering unearned revenue and recording income when it has been earned so it's a little slightly different situation in this situation we're talking about it's similar but mainly we're talking about here we've got customer deposits that we got money before we provided the work but in a deposit kind of format as opposed to like all of our revenue all the time being in a format that we get paid before we do the work so you can whatever your current accounting system is in then you've got to kind of figure out what's the best method what is the best method for dealing with this kind of unearned revenue type of situation it might differ whether you have like a subscription model or if you get like down payments for rental deposits and stuff like that how you might handle that kind of situation and we've talked about a couple different methods in like a prior section or a course when we recorded these amounts into our sub ledger account over here so you might want to check that out in more detail if that's an issue that's relevant to you this is also something that will be a reversing entry because we're basically saying here in the accounting department what you're doing is fine what you're doing is good it's not wrong we're just going to adjust it for financial statement reporting purposes as of the cutoff date to make the financials more properly reported as of that time frame and then we're going to reverse it so we don't mess up the accountant department doing what they're doing and then we're going to put it into the ZZZ customer down below so that it will be hopefully out of the way so if I go back up top and I run it again notice ZZZ now it's got these two journal entries in it and if I go to the first tab over here and if I go into the customer center sales customers I've got I'm not messing up their customers but I've made up this customer down below which has these adjusting entries in it and they don't match up to each other like would be happening with an invoice and a receive payment they're just going to be there's going to be these journal entries that are just hanging out down here which is kind of annoying but hopefully they're out of the way would be the general idea okay so let's go ahead and run our reports I'm going to go to the tab to the right and open up the hamburger reports on the left and let's close up the hamburger and then I'll type in the journal report the journal report let's do the entries as of the cutoff date 0228 and 022823 and so then I'm going to filter it by journal customizing and filter and transaction type on the journal boom and so there's our journal entries we've done thus far this will be one of those that we're going to need to do an adjusting entry as of a reversing entry as of the first day of the next period so we won't do it this time but next time if I go one day up we're going to have a reversing entry for it so stay tuned for that let's open up the trial balance to see where we are with it closing up the hamburger trial balance that's what we want to see that's what I want to see let's go from 010123 to 0228 let's go to 0331 233 so we can see side by side 30 months our cutoff date is 0228 the one in the middle but we will have reversing entries that could have an impact on the March stuff so this is where we are at this point in time if your numbers tie out great if not try changing the range see if it's a date range thing and we will do journal reports at the end of the adjusting entry section to further drill down on any differences