 Hello, in this presentation we will talk about the adjusting entries related to the bank reconciliation process for January into our bookkeeping problem in Excel, keeping in mind how this same information might be input into accounting software such as QuickBooks. Last time we entered the information for a bank reconciliation. Now we're going to take a look at those adjustments that would be entered, often times being revealed through the bank reconciliation process. We will first take a quick look at QuickBooks and then move into Excel and enter the information there. Within QuickBooks, once we did the bank reconciliation, we had two items that were on the bank statement, not on our books. Within QuickBooks we typically would go in and make that adjustment, meaning we would adjust the cash account here through the cash register, meaning we're just going to enter the $15, which was the difference, and charge it to the bank service charge reducing the checking account and posting the other side to the bank statement. And then we can go into the bank reconciliation and just check that off. So we're actually entering these adjustments as we go. We'll take a scroll all the way to the right in order to see where the bank reconciliation process is. So we're just taking a scroll all the way to the right to get to the bank reconciliation process, scroll into the right. Here is our bank statement and our bank reconciliation on columns DW through EK. Last time what we did was match out the bank statement and our books and reconcile the items and we typically have two reconciling items when we think about a book problem and that's going to be the bank reconciliation consisting of the bank balance, starting with the beginning balance and entering the adjustments in terms of outstanding checks and deposits in this case to get to our adjusted bank balance and then our book balance. And that's going to have the adjustments to the book balance to get to our ending book balance. And of course, those things are the same. Now we're going to make the adjustments and the adjustments need to be made to these book balance side, meaning we need to make, of course, this number actually be on our books, the correct number. So we're going to change this number to this number by entering adjusting entries related to these items. To do that, we're going to enter a journal entry. Now there's a problem here because if we enter the journal entry as of January, it could throw off or it will throw off our beginning balances. And typically that's what happens a lot of times when we do a bank reconciliation after the month has closed. And this is the issue with the closing process and something that we need to be aware of no matter what software we're going to be using. If we go back in and adjust things into the prior date, the software may allow us to do that. QuickBooks will allow us to do that. However, if we had already generated financial statements, we'll see that the beginning balances will change if we do that. We're going to do it that way just to see how that automation process happens and see what the problems can be. So note we have this adjustment here. I'm not going to make the adjustment in this month's journal entry as I probably should. We're actually going to go back to the prior month and enter this information as of the date that this happened, meaning this withdrawal happened sometime in January. We'll go back in January and record the journal entry related to the withdrawal. In doing so, it's going to change the retained earnings portion. So let's check that out. Let's see that now. We are going to go to the trial balance for the original trial balance here in January into the journal entry. We're going to say it's a withdrawal. We're going to say that catch went down clearly because we're working with the checking account. And the other side of it, we don't really know what the withdrawal was for. We're going to put it into miscellaneous expense. So we're going to go back to the original trial balance over here. First tab, and we're going to scroll to the right until we see our journal entries. And we're going to put the journal entry in there as of 1.31. So I'm in U8. We're in cell U8. The date is 1.31, and we're going to say the checking account is decreasing. So here's the checking account. We're going to make it go down by doing the opposite thing to it, which is a credit. So we'll copy that. We're going to put that on the bottom of the date. Right click and paste 1, 2, 3. And I believe the amount was $80. So that's going to be a credit for $80. And then we'll debit something also for $80. Once again, we don't know exactly what we purchased because we pulled money out. We don't know what it was for. If it was a draw, personal use, we'd put it here. If it was for business use, and we don't know exactly what it for, we're going to put it into, in this case, miscellaneous expense. So we'll copy the miscellaneous expense, and we'll scroll back up. And that's going to be the debit. Right click on V8 and paste 1, 2, 3. I'm going to format this just a bit and indent it. Now I'm going to make this whole journal entry yellow because it happened after we closed out the date and just meant just to highlight that fact because that could cause this problem. We will now post this journal entry to the general ledger. In order to do that, we're going to freeze the pane. So we're going to scroll up top. We're in AJ1. We're going to go to the View tab. We're in the View tab. We're going to go into the Windows group and Freeze Panes, and then Freeze the Panes. Then we're going to record this first account. Here's the miscellaneous expense. If we scroll back down, it's in the expense area. We have assets, liabilities, equity, then expenses. Here's the miscellaneous expense. We're going to go to the right till we find that. So we have the assets first. We then have the liabilities. We have the expenses. We're looking for miscellaneous. Here it is. It's way over in BO36. So we're in BO36. We're going to select equal in BO36. We're going to scroll up, and then we're going to select that 80. Let's do that now. We are in BO36. We're selecting equal. We're scrolling up just a bit, and we are pointing to that 80 and Enter. So there we have that. It's going to increase our balance in the expense by 80. We're going to scroll back to the financial statements to see where that information is. And there it is. We're out of balance by 80. There's the 80 on the trial balance, and it decreased net income. Now we will record the other side. We're going to the other side. That's going to be miscellaneous. That's going to be the check-in account. That's our first account on the trial balance, of course. Scrolling down to the check-in account, the next area in the check-in account is in AN26. So we are in AN26 and 26, and we're going to select equals. Scroll up just a bit and point to that 80 and Enter. And that brings the balance down in the check-in account, 94, 357. If we scroll back up, here's the 94, 357 there. We're going to do the same for the next item. So I'm going to go back to the third tab to find this. We're going to the third tab. And the next item we need to record is the bank service charge. So once again, it's going to decrease the check-in account. We know that because we need to adjust the check-in account, and the other side will go to some expense called bank service charges. So let's do that. I'm going to go back to the first tab. Back to the first tab. We're going to record this again as of 131 because it was for the first bank reconciliation. And then we're going to say that check-in account is going down. Here's the check-in account. It has a debit balance. We're going to make it go down, doing the opposite thing to it, which is a credit. So copy in the checking, putting that on the bottom of the date in V12, right-click and paste 123. We're going to indent that, go into the home tab, go into the alignment group and increase the indentation. We're then in cell X12. I'm going to make the credit of 15. We'll debit something then for 15. And it's going to be an expense and it's going to be bank service charges. Now note that some companies might not have an expense called bank service charge because it's too small and they might just put it into miscellaneous expense or something like that. I like to put it into a bank service charge and know what exactly those charges are to the bank. So here's the expense account. It has a debit balance. It goes up in the debit direction as all expenses do. So we will do the same thing to it and debit it, copying the bank service charges, scrolling back up and putting that in V11, right-click and paste 123. There's our journal entry. I'm going to make it yellow again, highlighting the fact that this is something that was entered after the closing process, which could cause us problems. We then have the bank balance or the bank service charges. We're going to post that to the general ledger. Here's the account on the trial balance. It's going to be in the same order on the general ledger. Let's find the bank service charges. We have the assets, we have the liabilities, and then we have the equity. We're looking for bank service charge. So let's scroll up just a bit. Don't see it there. Here it is. It's in BK39. So we are in BK39. We will select equals. We're going to scroll up just a bit and point to that 15. Let's do that now. Scrolling back down, we are in BK39. We're selecting equals, scrolling up just a bit and pointing to that 15 and enter. So there's the bank service charge. We should find that on the trial balance as well. Scrolling back to the trial balance, all the way back to the trial balance and scrolling back up, we see that the 15 is here, bringing net income down and we're out of balance by 15. Now we're going to record the checking account. Here's the checking account. Here's the checking account on the trial balance. We will be in the next open area. That's going to be right here in AN27. We will select equals, scroll up just a bit and point to that 15. So AN27 equals, we're scrolling up just a bit and pointing to that 15 and enter. Now we're going to see what the effect is on the financial statements. So in order to do that, we see that we adjusted the checking account here. So I'm going to go ahead and point to that on the financial statements and we see that we also made an adjustment to two expenses, one to the bank service charges. I'll point that to the financials and we made an adjustment as well to miscellaneous. So we'll point that to the financials. I'm then going to unfreeze the pane. So we'll scroll up to the top and we'll go to the view tab and the windows group and the panes unfreeze the panes. Then we'll take a scroll to the right. We're going to look at what happened to the financial statements. Scrolling all the way to the right, taking a scroll to the right. We see the financial statements on columns BW through CC and we see that cash has changed and note that we also see that the equity has changed. So equity is something that has been updated now and that's really what the problem is because really we have already closed out this financial statement if we had already closed this out, if we had already generated the report and given it to somebody, then this ending balance here in the equity, the equity as of the point in time of January 31st should be the beginning balance for February. And what we have done now is adjust this ending balance after it has been closed which will give us a problem in terms of our beginning balance for the next month. So that's really why we need to really be careful when we make these adjustments to QuickBooks or some accounting software for a prior time period. Software like QuickBooks really allows us to do that. However, it causes us problems if we had printed the report and we're going back to the reports and trying to say, hmm, our retained earnings doesn't tie out. How does that happen in detail? Well, we see that we made adjustments to 15 to the expenses and 80 to the expenses and we see that that is part of net income. Net income is revenue minus expenses. And remember, this is for the month of January and therefore that net income is going to be part of the statement of owner's equity calculation. Here's our beginning balance, here's the investments. This number then is now different than it was when we had already closed out the books when we already issued the financial statements at the end of January. And therefore this change is gonna change that beginning balance. And that then changes the ending balance. That's why our ending balance now for equity is now different. To see this problem more clearly, let's take a look at the closing worksheet. This is our closing process worksheet. We're gonna go to this next worksheet and remember the closing process, what we did is we said we're gonna close out all of the income statement accounts to equity and in so doing, we will then be ready to process the next month. In other words, revenue and expense accounts should only go up over a certain time period. If we wanna count what happened during the month of February, we cannot start with the January numbers. We have to make them zero as we did here. We took it out and we made it zero. So we did that and we made all of these accounts zero as after we recorded all the journal entries for January and we had a post closing trial balance, which in essence was just the balance sheet or permanent accounts, these accounts up top. Now that we go back in here and we look at it and we go through all these accounts which should be zero, we all of a sudden have this account just popped up and it's not zero anymore and this account just popped up. Of course, the 15 bank rec and the miscellaneous and those are gonna be items that we have now adjusted and therefore it throws off our closing process. We no longer have the correct closing entries over here because we used the prior balances. We're out of the closing process is wrong by the 15 and the 80. So that's just to show that this beginning balance then is not correct when we look at the trial balance for the next month. So let's go look at the next month now and see if we can make sense of this just to make sense of this problem. We're gonna go to the trial balance for February and then we'll go to the financial statements. I'm scrolling back to the financial statements. So we're going to the left and we're looking for the financial statements on the left. And here are our financial statements. We have the balance sheet. It's in BW through CC. These are gonna be our items here. What has changed here? Note if we scroll down to the statement of equity we see the beginning balance in the equity section being this 144, 175. That should match the ending balance that we have for the first month, the month of January. And there's gonna be a problem between those two. If we go back to January, this number here 144, 175 should match the ending number for January. Let's go back to the first tab and the trial balance, we're back to the trial balance and we are over in BW to BY and the financial statements. This ending balance, this 144, 80 doesn't match what we have. If we go scroll back, this is the ending balance for January which should match our beginning balance going back to the third tab, the trial balance for February that should match our beginning balance. It doesn't. And the reason is because we made that adjustment to the financial statements afterwards let's see where that adjustment is just on this worksheet to see where the nature of that problem is if you run into this problem and you will if you work with QuickBooks or financial statements much and we will then see that those two adjustments happen to miscellaneous expense and the bank service charges. So if we go through these expenses, note they all have zeros, zeros and all the expense accounts, zeros and all the expense accounts but miscellaneous now has a beginning balance of 80 and that doesn't make sense for an expense account it should be zero because we're starting from zero and counting forward for the month of February. We of course see the same problem for the bank service charges that should be zero, it's now 15. Where are these being drawn from these amounts? They're coming from the tab of January close and that cell I-28. So if we go back to the January close tab we see the 15 here and the 80 here. That's where they're being drawn from and that's where the problem is happening. So we're gonna go back to the trial balance. Now we're gonna go back to the financial statements so I'm gonna scroll all the way back to the top and then go to the right till we see these financials. Here we are in BW to CC and the bottom line of this is that the financial statements if we're thinking about a two month time period are okay, they're correct, they're in balance, total assets still equal, total liabilities plus equity. We're not out of balance. The only problem we have is that if we had printed the financial statements for January then our equity at the beginning balance of equity scrolling back down to the equity. The beginning balance here in February will not match the ending balance of January and that could cause a problem. So generally what we wanna do is do the bank reconciliation soon after the close of the month, make any adjustments we need to and then close the month and be very careful about recording anything prior to that. If we do find an adjustment like this and we need to fix it then it may be possible to expense those items in the following month in February so that our beginning balance ties out and we still have at least recorded these expenses in one of the two months. The end.