 QuickBooks Desktop 2023, Adjusting Entry, Accounts Receivable or Sales, Revenue or Income. Let's do it within 2-Hits QuickBooks Desktop 2023. 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. Here we are in QuickBooks Desktop. Get great guitars practice file. We started up in a prior presentation going through the setup process. We do every time maximize the homepage to the gray area view drop down hide icon bar open windows list checked off open windows open on the left. Reports drop down company and financial P&L profit loss income statement change in the range for the first 2 months 010123 to 022823. That is customizing it fonts to the numbers changed to 14. Oh yes. Okay, then reports drop down again company and financial this time the balance sheet. We're going to change the customized reports so we can then change the rain 010123 to 022823 and fonts to the numbers change them to 14. Okay, yes. Okay, there's the setup process that we do every time we're working on those adjusting entries that are being done at the end of the period. We're going to be focusing in on one you could think of as our accounts receivable adjusting entry or you could think about it as basically a revenue type of adjusting entry. This is not going to be the one related to our unearned revenue, meaning the negative accounts receivable account for a deposit or prepayment that we received. But rather this will deal with the timing of when we put the invoice into the system. So what we're going to imagine here is a situation if I go back to the homepage note that when we enter these forms in our revenue cycle into the accounting system. These are going to what's going to be what triggers the transaction and they're based on our cruel concepts in general. So in other words, the invoice here will generally create an increase to revenue income and the other side going into accounts receivable. That is an accrual concept trying to report the income when we actually did the work because the invoice is usually done fairly close to when we do the work and then we're going to receive the payment. Obviously if we create a sales receipt, that's the form used on a cash based system where we do the work and get paid at the same point in time. So we don't have that same kind of timing difference or distinction. So this adjusting entry would really only take place generally if you've got an invoicing type of situation. And if we imagine a situation that was like a job cost system, one like a CPA firm or a law firm that has staff, for example, that enters the time, let's say for the week or the month. And then at the end of the month or every two weeks or whatever, the partners then invoice the clients for the work that was done in the prior month or the prior two weeks. In that case, then the work was actually done. In this case, we'll imagine before the cutoff in the month of February, but the invoice didn't go out until March. The invoice is still when I look at these forms, the closest form to when the work was done. So that's when QuickBooks is going to record it, but it's still not exactly right from an accrual standpoint because the work was actually done prior to the cutoff. So we should basically pull that into the prior period. This is also something that if you do auditing or something like that, you could track the inventory and try to determine when the inventory actually changed hands from one person to the other in order to do what they would call like cutoff testing. And so what we're looking for is when the actual work was completed. That's when the revenue should be recorded. And that's what we're thinking here. So to get an idea of this, I'm going to enter an invoice after the cutoff, imagining that it should have been entered before the cutoff. I think the easiest way to think about this is not with an inventory transaction, but with like a time transaction. But I want to enter one with inventory because that'll make the most complex type of transaction that we'll have to do for our adjusting entry. Okay, so I'm going to enter an invoice. I'm going to say that we entered this invoice for Anderson guitars, Mr. Anderson after the cutoff. So it's going to be, let's say it was 030523 and our cutoff is 228, but it should have been entered before the cutoff. And we're going to say that the item, let's just say it was an ELP. I want to make it an actual inventory item because it's a more complex journal entry to deal with. So we'll say it's a taxable item. When I record this invoice, what's going to happen? Well, it's an invoice. Accounts receivable is going to go up. Therefore, the other side is going to go to sales. But accounts receivable is going to go up by 525. Sales is only going to go up by 500. The difference going to the payable account. And then we also know that the inventory will go down, not by the 500, but driven by the ELP, which I think was 400, the item. And then cost of goods sold will go up. We'll also have the net impact on sales will be the 500 minus the cost of 400 cost of goods sold. And we'll have the sub ledger for Anderson guitars supporting the receivable on the balance sheet. And we'll have the sub ledger for inventory. So there's a lot going on with this transaction. And when we try to, you know, make an adjusting entry for it, we got to take all that into consideration. Let's save it and close it and check it out. I'm not going to email it. I'm not going to email it. Quick books. Save it and close it. Let's check it out. Back to the balance sheet. Let's go to the profit and loss. Let's run the profit and loss through, let's say March 03 31 23. And let's run it by hitting our dropdown and by month. So now that I could see the month of March here, we have the sales item. Let's go to the balance sheet then and say the accounts receivable. If I double click on the account, let's make this as a, let's do as of March as well. Let's go to the customize and bring it up through 03 31 23 and then make that a month by month as well. And so there we have that. And we're going to say, okay, the accounts receivable here in March accounts receivable. There's the 525. That's the full invoice. The other side went to the profit and loss for the 500 in March. So it's only the 500. The difference being the sales tax, which is back on the balance sheet. I'm doing this fast because we have seen this in prior presentation. That's going to be a payable account sales tax payable. It's going to be in this item. And then we had inventory that went down. Inventory is an asset. So inventory is here. It went down and by the 400 and on the profit and loss, we had. So I started choking on a piece of peanut, I think, or something costs a good soul. So costs to good soul. There's the 400, the net impact on the income statement, the 500 minus the 400. Also, if I go back to the balance sheet, we know that there's going to be an impact on the sub ledger for accounts receivable, which we can see in report format reports, dropdown, accounting and taxes or customers and receivables. I mean, and then we're going to go to the customer balance. Let's look at the detail report. And we know that if I go down to Anderson, there's the 525 after the cutoff. The total down here ties out to the 22701 50. That's on the balance sheet. And we've got the sub ledger for the inventory. So if I go to the reports, dropdown, company financial and not company financial inventory, inventory valuation summary. As of let's just make it 12, 31, 12, 12, 31, 2, 3, the end that comes out to 4, 3, 4, 6. And that is what we have as of the end of March, which is the only data we've entered information up through. Okay, so now we're going to imagine that that invoice went out actually in March, but we have now determined that it should have gone out in February. So now I've got to pull it back into February. Now there's a problem with that. I could say, well, well, why don't I just go into the invoice here? I can go into the invoice and I could just change the date of the invoice. That's one method you could use. But you don't typically want to do that because you would like to have the invoice in there as of when it was entered in accordance with your normal accounting process. So I'm going to say, no, I don't really want to do that. What I'd like to do is pull it in with an adjusting entry before the cutoff as of the end of February. And then I'm going to do a reversing entry so that it will not be entered twice after the cutoff, which we can see most clearly down here in the profit and loss side. It's been recorded properly, but it was recorded in March. If I pull that into February, what's going to happen is it'll be correct as of the end of February, because that's where the income should have been recorded. But then by March 5th, it will be in there twice. So in order for me not to have to delete this one, I'm going to put it in there as of February with a journal entry as opposed to an invoice to show that it's an adjusting journal entry, a timing issue. And then I'll reverse it as of the 1st of March. That's going to be the idea. Now to do this, we need to visualize what's actually happening on the invoice. And sometimes it's easiest to do that with a journal entry. We might have to actually use a journal entry form because it's impacting more than just two accounts. So I'm going to format myself here in Excel and just give an idea of what the invoice is doing. I'm going to go to currency, brackets, no dollar sign. And I'm going to say, okay, what did the invoice do? I'm going to say, well AR went up, accounts receivable went up, and it went up by the amount including the sales tax. So it went up by 500 plus 500 times .05, which was the 125. Then we had sales, which is a credit, is going to be the 500. And then we've got sales tax payable, the liability. So that's what happened. It's often useful to think about the second half as a separate journal entry, meaning costs of goods sold went up by 400. Because that's the cost driven by the item and then inventory went down by 400. So that in essence is the journal entry that I need to put into the system. So instead of entering an invoice, I'm just going to enter a journal entry with the invoice. However, I've got some problems here with this because the accounts receivable is tied to the subledger. So if I do not put a name on the accounts receivable, my subledger would be off from the report, which might not be a big deal if it was an adjusting entry, but QuickBooks won't even let me do that because it won't let me enter anything to accounts payable without a name. So I'm going to have to deal with that problem. And then the sales tax payable, I might have a similar issue with the sales tax payable because it's a payable account. And oftentimes QuickBooks wants us to add a vendor in that case. I also have the inventory, which is an issue because if I enter something into the inventory without using an invoice, then it's not going to tie out to the subledger. Not so much of a problem as long as I note that because I'm going to reverse it out and then I'll be back tied out to the subledger. QuickBooks allows us to do this one where it doesn't allow us to do this one. In other words, it doesn't allow us to post to accounts receivable without a customer generally. It does allow us to post to inventory without an inventory item. Now there's a couple ways we can deal with this issue. So for the accounts receivable, for example, I could use the same customer, but maybe I want to use some other customer so it doesn't show up in the bookkeeping. I want to keep the bookkeeping's records as clear as possible. So I'm actually going to set up another customer because QuickBooks will force me to use some customer. Another method that you could use is to create another accounts receivable account, which is not going to be an accounts receivable type of account just so you can enter the adjusting entry, which is kind of messy because it results in two accounts, but that way you don't have to mess up any of the subledger stuff that's tied to the accounts receivable. The same thing is with the sales tax down here. You might say, okay, that sales tax account is tied to the sales tax widget thing, and I don't want to mess up sales tax calculation widget thing. So for this one, I'm actually going to add another sales tax account so that I make sure that I don't mess up anything on that little sales tax widget, although you might not need to do that, but I'm going to do that just to make sure. Okay, so let's check it out. If I go back on over to QuickBooks, I'll show you what I mean. I'm going to do this with an actual journal entry this time because there's multiple accounts affected, and using debits and credits is more efficient than a register. So I'm going to say make a journal entry, and I'll do this as of 022823. And so I'm going to say accounts receivable is going to go up by the 525, we said, right? 525 in the AR, and this I'm going to say is the adjusting entry. You might want more detail than just adjusting entry, but we want at least that. Here's where you got to put the name. I'm not going to add the name first. I'll try to record it without it first just to show you that QuickBooks won't let me do it. And then the next one is going to be sales. So that's the revenue account, but it's only for 500 ADJ entry. And then we've got the difference. Notice it's populating the automatic plug so far. This is going to be I'm going to create a new account called Sales Tax Payable Adjustment Account so that I can try to make another account to not mess with that payable account that's tied to the sales tax widget, which I don't think it'll mess anything up if you do post just to the sales tax payable, but this is just another safeguard. So I'm going to try to set this up and tell the bookkeeper, look, this is my account to fix this particular issue and I'm trying not to mess it up your account over there. So I'm going to say this is going to be a liability, other current liability. And then next, and then I'm going to make it a sub ledger of the sales tax payable. So it'll be right next to the sales tax payable and underneath it. And I can collapse it into one account to make the reporting look good. I still want to just print out reports from QuickBooks instead of having to adjust them a bit more outside. So sales tax payable. I'll say OK. Now because I didn't make it a payable account or any kind of widget account. It's just an other account, other current liability. I'm trying to type at the same time as talk. It's not working. It's totally not working. That means I don't need a name. Whereas up here, the reason I can't really do the same strategy as easily is that to make a sub account for accounts receivable, I'd have to make it an accounts receivable type of account instead of an other current asset account. And I don't really want to make another accounts payable type account because then it would come with the sub ledger and it'll mess up the customer sorting and all that kind of stuff. So I can't I can't really do the same strategy. I would have to make another accounts receivable account under other current assets, which is a little bit more messy. So I'm going to try to post accounts receivable directly there for. And then I'm going to I'm going to separate this a little bit because I'm going to record the other side, which is cost of goods sold. Cost of goods sold is going down by I believe 400. And this is an adj entry because I think about these two entries kind of separately. And then I say inventory even though they happen at the same time. So I'm going to post this directly to the inventory account adj entry adj entry. And notice again, you could do the same thing with inventory. You might say, Hey, look, I don't want to mess up the sub ledger for inventory. So maybe you make another account inventory adjustment account and put it as a subsidiary of the inventory because I believe inventory is just another current asset account. However, I don't have to do that because I'm pretty much OK with the fact that this is going to throw off my inventory account. QuickBooks is not going to force me to make to make an item when I hit the inventory account in the similar way as they do force me to use a customer when I hit accounts receivable. So I'm going to be OK with inventory being off by 400 as of the cutoff date because I know why it is off and then it'll fix itself when we do the adjusting entry. So it gets a little bit convoluted with with the sales tax and the inventory of course. So let's go ahead and record it now. So now I'm going to say save and close and it's not going to let me do it because I don't have a customer. So then I'm going to say, OK, QuickBooks, I'll put a customer here. I don't want to go to the actual customer, which was Anderson because I don't want to mess up the sub ledger again. Meaning if I go to my customers and customer center, if I wrote this to Anderson, then I'm going to have this journal entry in Anderson's detail and then I'll have a reversing entry. I don't want that. So I'm going to create another customer that's just going to have all this junk in it that's related to my adjusting entries instead of posting to an actual customer. And I'm going to call that customer something like ZZZ. So it'll appear at the bottom of the report, adjusts, adjusting entries. And so I'm going to set that up and do a quick setup for the customer and it's going to be a customer. And OK, why is it doing this? Maybe later. OK, and then we'll say save it and close it. See if it lets me. It lets me do it. So I close this back out and now notice I got ZZZ adjusting entries down here so it doesn't mess up Mr. Anderson. And if it's in alphabetical order, it'll be at the bottom. So hopefully it won't totally irritate the accounting department. And then if I go back to the balance sheet, I can say, OK, in accounts receivable in February now, if I go down, there's the 500 in February. Wait, that's not right. Hold on a second. Where am I? I'm supposed to be in the accounts receivable in February. So there's the 525. It's in there with a journal entry, which looks correct. And then, of course, in the following month, if I go into the following month, there's the actual invoice. So if I see the two month timeframe, if I take this from 02, let's say 02 28, then you can see it goes in as of the end of the month, making it correct as of the cutoff date. But then it's going to be in there twice as of 03 5. And so what do I have to do? I have to do a reversing entry so that it'll be back to normal. And then when I enter the invoice in 03 5, it'll net itself out. That's going to be the ideal we'll do in the following presentation. The other side goes to the profit and loss. So in the profit and loss, it's going to be an income now in the sales income. So there's the 500 and the sales item closing this back out, closing this back out. The actual original is 500 right there. Once again, it's in there twice. If I go 02 28 to 03. So now it's in there two times, but I got it in there before the cutoff. Then I'm going to reverse it next time after the cutoff and then we'll be good to go closing that out. And then if I go to the balance sheet again and we look at the liability account, I've made this adjusting account. So now I've got the sales tax, which I could squish up with this thing here or expand it. Squishing is the non technical term, obviously. And then I've got the adjustment account and I've got the other, the other sales tax account here. So now it's in there separately. So hopefully that won't mess up this account, which has the widget tied to it. Right. And then I can go and so it's in there as of the end of February and then it's in there twice. Once again, between February and March. And then the inventory up top is right here. If I go into the inventory, there's the 400 journal entry. If I look at the next month, there's the actual, that's the accounts receivable. That's not inventory. Here's inventory. The actual 400, if I take this from 022823 over, it's in there two times, but it's in there as of the cutoff. That's what we want. The other side finally is on the P and L profit and loss and that's 400 right here. That's the actual item. And then if I go to the prior month, here is the 400 here. So once again, it is in there twice, but now we've made it correct as of the cutoff. We'll do with the reversing entry next time. And now let's think about what happened to the sub ledgers and what's going to happen with the bookkeeping process. Did I mess anything up for the accounting department as I'm doing the adjusting entries? So if I look at the accounts receivable, we know that there's going to be a sub ledger. It wouldn't let me, you know, not, you know, mess up the sub ledger. So let's just see what I mean. If I go to the customer balance detail, it wouldn't let me not put a customer in there because QuickBooks is saying, Hey, I want this customer sub ledger still to tie out to what's on the balance sheet. It's trying to help me out. And so, so they've got the 22701. It doesn't tie out because I need to change the dates. Let's go to 022823. So 22701 right there ties out as of 22701. But, but so, but then it, in order to do that, the downside of QuickBooks doing that is that I had to choose a customer for the adjusting entry, which I don't really want to tie out to a customer. So, so that's here, I could have put it up into Mr. Anderson's detail. But then I would have this adjusting entry in Anderson's detail. And when our bookkeeping or accounting department talks to Anderson, it's going to be a mess because now they got these adjusting entries in there. So at least I can put it into another account. So it doesn't mess up the accountant there. That's the idea at least. And then the other side or the other account is the inventory. So if I go into the inventory valuation summary as of let's make it 022823 pulling out the trusty calculator trusty calculator. It's now coming out to the 4746. Now this one, they didn't make me assign an inventory item when I hit it with the $400 with the journal entry. So if I go back to the balance sheet, you would expect it to be off. So it's different, right? Minus by the 4346 by the $400. I expect that to happen. I'm okay with that being the case because I know what the difference is. And when I reverse it, then we'll be back in balance after that time frame. So that one QuickBooks didn't force me to add an item in a similar way that they did force me to add a customer. And that actually makes it a little bit easier for this process because that allows me to not mess up the sub ledger for inventory. And just do an adjusting entry and then reverse it for the timing difference on the financial statements without messing up kind of like the sub ledger is the general idea. So that's that's it. So now we've got it in place next time. What we're going to do is reverse what we did here now that we got it right as of February as of March 1st so that it's not in there twice as of March, which we can see most clearly on the income statement because it's in here in March. But we pulled it into February because that's when we actually earned the revenue now by March. It's going to be in there two times March 5th at least and we're going to reverse it as of March 1st because all of our reversing interest we want on the same date. And therefore it'll net out by March 5th and it will be good. And by doing that, it's kind of maybe not the prettiest looking thing. But it works quite well that we'll have our financial statements correct as of the cutoff and then be correct by the time that the actual transaction was entered. Okay, so let's look at our trial balance and see where we are reports drop down accounting and taxes trustee trial balance going from 010123 to 022823 and let's customize that report. Oh, there's one other thing I want to look at. There was an error made in the date error in a prior presentation. So I'm going to go to the to see that list drop down chart of accounts and double click on the checking account. And so this was an error made before and it's a date error, of course, because I'm working in the future not in real time. And I turned off the date restrictions, but here's that it should be as of 228 and I've got it in there as of 1228. So I'm going to change that now. I apologize for that being off. I'm going to make that 228. And so there, there we have it. So it's pulled into our timeframe before the cutoff. So hopefully that doesn't totally mess anybody up. It's only but it is what it is. It is what it is. All right, I messed it up. I whatever. So then I'm going to go back to the trial balance customized fonts and numbers, change the size, bring it on up to 16. Okay. Yes. Okay. This is where we stand at this time. One other thing. I just want to run the journal report just to show you that report to see what we've done with the adjusting entries thus far before I scroll through this reports drop down accounting and taxes. This is the journal report. I'm going to kind of I'll try to go through this each time if I remember. And then I want to make this from the cutoff date 022823 to 022823 for that one day. And then I'm going to customize it. And I'm going to say that we want to filter it by transaction type. And I just want to see the journal entries because the things we're entering are journals. And then I'm going to go to the fonts and numbers and bring it up to let's say 12. Okay. Yes. And okay. So thus far we've entered these two adjusting entries which we can clearly identify due to the fact that we entered them as of the cutoff date 1228 and their journal types of forms because all adjusting journal entries will be journal type forms. And because we identified them as adjusting entries in the memo so we can identify those. And then we have the reversing entries as of the next day which we only have one thus far and we'll be adding another one I believe next time. Okay. So the trend let's just finish this up would you finish this up. Okay. Here's the here's where we stand as of the cutoff date right now. And next time we'll go into the reversing entry. Bank service charge I think that's the one that was off by that 1231 date issue.