 Zero Accounting Software 2023, reversing entry related to loan payable breaking out the short-term and long-term portions. Get ready to become an Accounting Hero with Zero 2023. First, a word from our sponsor. Well, actually these are just items that we picked from the YouTube Shopping Affiliate Program, but that's actually good for you. Because these aren't things that were just given to us from some large corporation which we don't even use in exchange for us selling them to you. These are things that we actually researched, purchased and used ourselves. Here we have a Western Digital WD Elements 20TB USB 3.0 Desktop External Hard Drive. We use as part of our backup system, noting that if you lower the number of terabytes of storage, the price will lower dramatically as well. When you're thinking about a backup system, you usually think about an online system or an external hard drive system like this, or ideally some combination between the two, giving you some redundancy. 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It being a comparative one, which if you don't have, you open the standard. Back to the middle tab, the balance sheet noting that we're doing adjusting entries, which are entries as of the end of the period, either month or year to make the financial statements correct as of that time frame in accordance to whatever kind of accounting system being used. In our case, that being the accrual accounting system, our cutoff date is February 28. Now, last time we did an adjusting entry related to the loan payable, breaking out the short-term and long-term portion of the loan payable, which note is not exactly like the classic adjusting entry because the classic adjusting entry has a timing element to it, typically having a balance sheet account and an income statement account. But this is an adjusting entry in the sense that from the bookkeeping side of things, it makes sense to put everything in one account so that we can then track that account as we make payments, tying it out to the amortization table with each payment that we make. And then periodically at the end of the year or the end of the month, we break out the short-term and long-term portion for external reporting needs so that we can comply with whatever reporting needs we need so that we can use the financial statements for our own internal purposes because note that the reason this is important obviously for external, maybe not so obvious, but for external reporting is that we want to be able to compare our short-term liabilities to our short-term assets to make sure that we have enough current assets in order to be paying off the current liabilities. So you could end up in situations like companies that have a lot of loans or a lot of equipment like a construction company, for example, often look good if you look at them from a total asset versus liability standpoint. However, they could still have cash flow problems because all of their assets are in fixed assets. The classic example of this is like a farm. If you look at some forms, you could say, well, they look great because their equity looks good, their assets are a lot higher than their liabilities, but they've got all of their assets in the form clearly so that they can help to generate revenue because that's the things that are generating the revenue. So you could still have cash flow kind of problems. That's why you want to be breaking out short-term and long-term so you can see if you have the short-term capacity to pay off the current liabilities that are coming due within the next year. And that's the concept of it. So from a bookkeeping standpoint, we break that out periodically so that we can use it in that case. Now, you also, first of all, business might be doing this just for taxes. And for taxes, remember that you might not need to break out the short-term and long-term portion if you're sole proprietorship in the United States because you just really need the income statement for tax reporting purposes. But if you're an S corporation, corporation LLC, you might need to enter the balance sheet and break out the short-term and long-term portion possibly for the tax needs as well. So now that we've broken it out, what we want to do is put it back together again in a reversing entry because if we did not do that, it would cause problems because going forward, what's going to happen? We broke out according to our amortization table. This is what we did last time. We said, this is where we stand. We broke out the short-term portion, which is this amount, and the long-term portion, which is where we would be after another year's worth of payments. If I continue making another payment right here, then I'm not going to basically be able to tie my balance out to the one account related to my loan payable. If I'm trying to tie everything out to the amortization table. So what I'd like to do is reverse this so I can put it back together in one account and not mess up the accounting process so they can continue to make their loan payments and have one account matching the amortization table. So last time we did an adjusting entry like this, let's go ahead and find that adjusting entry and then we'll just reverse it. So if I go into, let's just go into the Chase account here and we should be able to find the adjustment that we made scrolling down. Here's our manual adjusting entry. Let's go into that and there it is. We debited the loan payable on the short-term for the 56 and we credited the long-term for the 56. So now we're just going to reverse that as of the first day following the adjusting entry March 1st. All right, so let's go back first here and I'm going to go back to the balance sheet and then I'm going to go to the first tab and we will go to the accounting drop-down. Look at the reports. We want to be opening up the journal report. Journal report. Poor Favor, if you please. And we're going to then say we want to add a new journal and I'm going to say it's just going to be a reversing entry. It's going to be as of the first day after the cutoff. So we're going to say this is going to be Feb 28 was the cutoff March 1st, the day after, noting that in practice, if we knew we were going to reverse it, we could use the reversing option here, which should generate the reversing entry automatically for us, but here we want to kind of talk through why we would do the reversing entry. So the reversing entry will simply do the opposite of what we did before. So last time, so let's take the 56, 7, 69, 59. Let me see if I can memorize that first of all. 56, 759.69, 56, 7, 6, 9, 5, 9, 5, 6. There's a lot of 5, 6, 7, 6, 9, 5, 9, 5, 6, 7, 6, 9, 5, 9. Oh my goodness. This is a dyslexifying number. I'm telling you, they made this number on purpose just to confuse me. 56, 7, 6, 9, 5, 9, 5, 6, 7, 6, 9. That's it. That's it. Okay, so then we're going to say that this is going to be going to the long term is going to be the debit. Now notice the easiest way to think about this is obviously to look at what we did last time and reverse it and not necessarily put the debit on top and the credit on the bottom. I'm doing that. I'm reversing it. I'm putting the debit on top and the credit on the bottom because there's only two accounts that are affected. But just remember as a general rule when you do the reversing entries because they're oftentimes kind of backwards in nature. The easiest thing to do is just look at what you did with the adjusting entry and then keep the accounts from top to bottom and just reverse the debits and credits. But here we go. Chase, this is the short term and there's the credit. So there's the debit. There's the credit. I think I went the right way on it. If I went the wrong way, I'll be able to figure it out and find it. So let's go ahead and save it. And then that looks good. Let's go into our balance sheet and update the big balance sheet. Scrolling down, rolling, rolling, rolling. And so now we have the breakout of the 1310854 as of the cutoff and then we put it back to where it was the 6987813, which is the full amount according to our amortization table so that the accountant department or us when we're doing our normal transactions going forward can easily just break out the interest in principle and tie into that loan balance without having to try to break out the balance every time going forward. If I drill down on that, we should see our journal entry, the manual journal. And so there it is. Here it is. Right there, scrolling back up and then the long term portion should be gone. It should be gone. Oh man, what happened? Let's go back into my balance sheet. I went back too far or something. K-PASO man, what happened? Let's go back in here and then scrolling down, rolling, rolling, rolling. And the long term is there for the cutoff and then it's gone as of March because we put it back into the short, to the one account. All right, so there it is. Let's go to the next tab to the right and nothing happened to the income statement because this is not exactly an adjusting entry. We don't have that same kind of timing difference. We typically have. It's all two balance sheet accounts, but still has that adjusting concept that we're doing it as of the end of the period. Let's hit the dropdown. Let's open up our reports and let's take a look at, I'm just going to run the report as of the whole year so it includes our reversing entries. So I'm going to say this will be trial balance and open that up, dropping it down, dropping down the base beat. 2023 into the year update. So this is where we stand at this time. So if you tied out last time, but you're off this time and notice I'm running, I'm including the reversing entries here because I'm just running the whole year. If you were on last time and you're off this time, then we put the the only change we made is we now put the loan back together again just like they couldn't do it with Humpty Dumpty because but we did it with a loan. We put it back together again and it didn't take all the King's men. We did it ourselves. So in any case, there it is.