 Hello, in this presentation, we will enter the reversing entry related to the accounts receivable adjusting entry into our bookkeeping problem in Excel keeping in mind how the same information might be input into accounting software such as QuickBooks. We will first take a quick look at QuickBooks and then jump into Excel and enter our adjusting or reversing entry there. The accounts receivable reversing entry, like all reversing entries, will be done after the adjusting department and reverse the entry made for accounts receivable. Therefore we need to know what that receivable reversing entry is. Remember what happened is that we had an invoice that went out correctly, but the invoice went out after the cutoff date. In our case, it went out in March even though the work was done in February and therefore we needed to bring that revenue back into February. So we recorded the entry related to an invoice in February and of course what's going to happen there is that as of the point in time that the invoice was actually created, we have put that invoice in the system two times. In order to adjust for that, we could reverse our adjusting entry as of the first day of the following month. So first we'll take a quick look at QuickBooks and then we'll jump back into Excel. In QuickBooks we have this information here and we could do this once again most likely would be doing this with the format of entering journal entries and make the adjusting and reversing entries. It is possible to do this with our registers however and go into the use register and reverse the adjusting entry that was made. In essence, the adjusting entry was an entry that is behind the creation of an invoice. So what we're going to look at is we're going to say here's the journal entry for an invoice and we will reverse that entry for our reversing entry as of the first day of the following month in our case that being March. So we're going to enter that into Excel so we'll take a look at that now. Here we are in Excel, we're in our reversing entries tab, we're going to be entering a reversing entry for the accounts receivable and in essence what we're going to do first is take a look at this entry, this is a bit more complex of an entry when we're looking for the entry related to an invoice and then we want to reverse it. So the easiest way to do something like this and this is similar to if we're doing a credit memorandum or something like that is to look at the journal entry and then do the opposite. So we're going to go back to the adjusting entry and see what the adjustment entry was. So I'm going to go to the adjusting entry tab and it's going to be down, I'm down here in A12 through D17 and the idea here was that as of the end of the month the invoice related to this entry was entered but not until after the cutoff date in March but the work was done before the cutoff date sometime in February. The work in this case is the delivery of inventory. So we would check the shipping documents and we'd say hmm the work was done before the end of the month and therefore the revenue under the revenue recognition principle as well as the cost of goods sold under the matching principle should be recorded in this financial statement. So then this is just going to be the entry for an invoice. We debit accounts receivable and then we credit the merchandise sales, the revenue and then we have the sales tax payable of course as well that we had to collect on it is a credit. And then in the cost of goods sold we had cost goods sold to 400 and inventory 400. So what we're going to do is just reverse this again it's going to look funny it's going to look weird and it's going to be actually not totally correct as of the first day of the next month. It won't be correct until the day we actually invoiced somebody sometime in March. So that's the cost we're going to have to sacrifice they're going to make something look kind of funny until this next thing happens and that the invoice was issued and once that happens everything will be correct and that'll give us a nice break between the accounting department and the adjusting department. So what we're going to do is we're going to debit the merchandise sales we're going to debit the sales tax payable and we're going to credit the accounts receivable and then we'll do the debit to the inventory asset and credit to cost of goods sold. Let's do that now back to the reversing tab we're going to go all the way back over here to the right to the reversing tab and we're going to do this as of the first day of the next month as all reversing entries are the first day after the financial statements were created which in this case is 3 1 and we're just going to reverse this out. So we're going to reverse the order a little bit too we could make it just the same exact order meaning before we debited the accounts receivable and I could start with accounts receivable here I won't do it and put it as a credit but then the credits would be on top and whatnot and most of the time when you see these reversing entries they still keep the debits on top which means that we have to adjust the order a little bit. So what we're going to do is we could start with accounts receivable but we have to make it a credit so I'll copy that and I'm going to put it on the bottom this time so it's going to be down here B8 right click and paste 123 and we credited it for 525 it was a sales price of 500 and then 25 was the sales tax so it's 525 on the credit and then we had the other side usually is sales if we were to think about it when we're creating the journal tree sales usually goes up and this time we're making it go down note that there's nothing in sales of course because it closed out already to the equity so we're gonna we're gonna make a negative sales here so we're gonna copy the sales it usually goes up with a credit we're gonna make it go down with a debit so we'll copy K22 we'll scroll upward B6 right click and paste 123 and that is for the 500 the sales price not including the amount that we will be receiving for the sales tax and then the difference of course is 25 and that's the sales tax that we're gonna have it's gonna be also reversing it usually would be increasing the sales tax payable here and now it's gonna be decreasing it note there is a sales tax payable here unlike there was nothing in the sales down here because this is a permanent account up here as opposed to a temporary account down there and this account did not close out to therefore the equity account so this is the credit balance we're gonna make it go down by doing the opposite thing to it which in this case is a debit so we'll copy K16 right click and copy scrolling up we're gonna put that in B7 right click and paste 123 we could indent this one over here we can go ahead and increase the indentation go into the home tab the alignment group and increase the indentation then we typically have if we were to record this we usually have the inventory going down and now we're doing the opposite so the inventory is actually going up with a debit because we're reversing this sales entry so we'll copy the inventory asset and we're gonna put that in B10 right click and paste 123 and that was for 400 and then we're gonna credit something and the other side of that usually it's cost to get sold once again cost to get sold like an expense account it is an expense account and it has a debit balance that has a zero because it's been closed out to the equity it typically only goes up in the debit direction we're making it go down by crediting it so we'll copy the cost of goods sold right click and copy scroll back up and that's gonna go into B11 right click and paste 123 we'll indent that now go into the home tab alignment increase indent and there's our reversing entry so this is usually pretty complex for people to kind of get the reversing entry by building it like that it's easiest to think about let's record the entry for a journal entry debiting accounts receivable crediting sales crediting sales tax payable debiting cost gets sold crediting inventory and then reverse that the thing that makes it a little bit more confusing is that we we're gonna have to jumble up the order in order to put the debits on top the credits on the bottom in practice if you want to put the credits on top just because it mirrors exactly what the other entry was you can do that it's not it's not exactly wrong it's just it's just if you're getting picky about the format will be picky about the formats if your supervisor doesn't like the credits on the other side then they will not like it if you can justify it by saying that that makes more sense for the reader to be able to see what is happening then they that might be acceptable a computer typically will always put the debits on top and the credits on the bottom just because that's the rules of the system okay so let's go ahead and post this we're gonna say here's the sales merchandise sales we're gonna scroll down here's merchandise sales in M22 so we are in M22 we're gonna say equals and point to that $500 you'll see that it goes up in that in the debit in the debit direction it's actually kind of going a negative sales here so it's making our net income actually go down and this is unusual looks very strange it look it should look very unusual we'll talk a little bit more about why it is we've already discussed it a bit but we'll talk a bit more about why we're doing that and after we record it and then we've got the sales tax payable here's the sales tax payable here here's the sales tax payable here we are in M16 we're gonna select equals and point to that 25 bring the bounce down from 125 down by 25 to 100 then we have the accounts receivable there's the accounts receivable we'll scroll up we want to be in M4 we are in M4 selecting equals pointing to that 525 bringing the bounce down from 11,274 by 525 to 10,749 we then gonna record the other side we've got the inventory asset $400 so here is the inventory asset there and we are in M5 we're gonna select equals and point to that $400 bringing the balance up to 1713 then we have the cost of goods sold scrolling down the cost of goods sold here's the cost of goods sold we are in M25 we're gonna select equals and point to the cost of goods sold and that brings it up in the credit direction now again these income statement accounts before we have any activity we have before we've done anything in terms of sales or expenses or paid for anything or consumed anything as of the first day of March we've got these activity in here from the reversing entries this again very unusual and it doesn't really it's not perfect to cruel accounting however it does help us out to make a systematic way to make these type of adjustments meaning if if there's a an invoice that was sent out in March that should have been in February we can have a system of our adjusting process to go through there and say okay we're gonna look up for our shipping documents in March and see if there's any invoices that we need to pull back and actually record in February before we issue the financial statements then we'll do that and then we can say okay instead of me like deleting the original invoice which could mess up our billing process and all that kind of thing because the invoice is tied to the receivable then what we're gonna or instead of us trying to wait and enter the reversing entries as of the exact date and time we will just reverse all reversing entries as of the first day of the next month and that's gonna result in this funny-looking thing a reversed sales but once the invoice is actually made this will reverse back out to zero and within the time period of that month of March it'll be correct therefore as of the end of March when we make the financial statements again this will be a zeroed out to zero because this negative sales will match up against the actual sales of the invoice and we had already recorded the sales in the proper time period in February with the use of reversing entries so it'll match up and work itself out at the end of the day and it'll also make it so we can have that separation between the accounting department and the adjusting process even if it's done by the same person but oftentimes it's not and we don't want our adjusting entries to mess up what's done on the typical day-to-day process it's not good when the adjusting department makes their adjustments and then the normal accounting departments has questions about these funny things that popped up and in there so if we do these reversing entries it will lessen those type of issues those type of timing problems