 QuickBooks Desktop 2023 Adjusting Entry Unearned Revenue Customer Deposit Let's do it! Within 2-its, 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 Going to the view drop down we got the hide icon bar open windows list checked off open windows open on the left Reports drop down company and financial profit loss P&L income statement change the range 010123 to 022823 that being the cutoff date 0228 that is let's go from the totals bring it to the months Month by month side by side customize up top fonts and numbers and bring the font size up to 14 as has been our custom Reports drop down again this time you know where we're going the balance sheet that's where customize it from 010123 to 022823 And then we're going to go to months as well once again fonts to the numbers and bring it up to the customary 14 Yes indeed ok that's the setup process that we've been doing every time we got the cutoff date for February 28 We're now doing adjusting entries related to accounts receivable but this time not related to an invoice that was entered in the wrong period But instead related to unearned revenue now note this adjusting entry will be different than the normal adjusting entry that you might see in accounting courses and you have the normal adjusting entry related to unearned revenue Let's do a quick recap of it and explain why that might be the case in practice in quick books Let's go back to the homepage noting that normally when you have the revenue cycle either you get paid at the same point in time As you do the work and enter a sales receipt or possibly you can enter a deposit form which records revenue at the point in time that you enter these items Or you have an accrual process in which case you have to do the work first invoice the client and then get paid in the future There are some businesses where we get paid first and so a business that always gets paid first is something that becomes more and more relevant these days Like a subscription model which used to be for like magazines and newspapers but now a lot of times the programs or applications are such that you get paid like a year in advance And then you provide the programs in that case then you would in theory you would have to put the actual money in place first and then record the invoice after In other words if you collected money on a subscription basis but you have not yet provided them the subscription then you haven't really earned the revenue on an accrual basis And therefore should be putting it on the books not as revenue but instead as a liability because you owe them something in the future Hopefully not money but rather access to whatever you told them you were going to give them for the year such as computer application or magazines or whatever And then and so it's a little bit backwards so then we have to deal with this unearned revenue kind of situation The other place you might see that in is like rental property where you've got the security deposit that you're going to be dealing with which is a similar kind of thing And then you also might have something where in our case we sell large customary items such as guitars If someone asks for a custom guitar for like a plaid guitar or something we don't have it so we're going to go and ask our vendor to give us that customary guitar But we want a down payment up front once again we get paid before we actually create the invoice Now normally when you do that if I if I was on just a debits and credits standpoint from a reporting standpoint Then on the balance sheet you should be increasing a liability for the fact that you owe money in the future and the other side going to cash Or in other words more easily seen I think we would deposit the cash into the into the cash account and the other side should go instead of going to revenue a liability account Why because we haven't earned the revenue we expect to earn it in the future that account customarily called unearned revenue But it could be called like customer deposit depending on the situation and so on and then periodically monthly for example We might go into the unearned revenue account and determine how much of that revenue has been earned For example if it's a subscription basis we would then say okay this is how much of the subscription we have given access to And therefore we're going to decrease the liability and record the other side then to the revenue account periodically That the problem with that system within accounting software however is the fact that the customers are tied to the accounts receivable account If I set up a liability account called unearned revenue then I don't have the same customer ledgers related to it So especially in a situation where we have like this deposit situation where I've got a prepayment deposit And I want to attach an invoice to it as opposed to a situation where like all of my revenue is prepaid because I have a subscription model Then I want to be able to go into here and tie out the invoice that I create in the future to the deposit It's more difficult to do that if I've got a separate account for unearned revenue So we talked about the couple different methods that you could use in order to deal with this problem When we put in a security deposit so if you want to go back if you have access to the prior section or course to take a look at that You can get that idea in a little bit more detail but just a quick recap on it If I go to the customer's drop down customer center note that we had a couple different formats that we can do the prepayment on But from the bookkeeping standpoint the point is that if I have a payment even if I got the payment in advance I would like to see it in here as a payment that I can later tie out to the invoice so that I can connect the invoice to the payment That's kind of what I want to see from the accounting side of things and it makes perfect sense then from an accounting side or a bookkeeping side of things To enter the receive payment first which will which QuickBooks will create a credit for meaning create an amount that can then be applied to the invoice Let's see that by going to the reports drop down. I'm going to go to the reports. I'm going to go to the customers and receivables And we will then go into the customer balance detail And let's increase the size of this thing. So we'll go to the to the header and footer Actually, what am I doing header and footer? I'm going to go to the fonts and numbers change the size. Let's bring it up to like 14 Okay. Yes. Okay. I'm thinking 14 is kind of large but we'll just hopefully that'll be okay We will expand these out. So there we have it Now I'm going to make this as of the cutoff date 022823 So this report should tie out in theory to what is on the balance sheet 2270150 should tie out to what's on the balance sheet Which is 2270150 as of the cutoff date If I go back into the customer balance detail however I have a couple items in here that look like negative receivables Which doesn't make sense if I go down here for example This 200 right there for example is negative How can that be? How can I have a negative receivable from Eric music? Well, it's a negative receivable because we actually owe Eric music something We owe Eric music the guitar that they pre-ordered and gave a $200 deposit on Or we owe them the $200 back therefore it shouldn't be a negative receivable but rather a positive liability But again if I put it into a liability account it wouldn't be able to track in here as a credit Notice it's a credit because it's a credit in an accounts receivable account That I can then which usually lowers the account but puts a negative balance here Which I can then apply to an invoice So from a bookkeeping standpoint it works perfect But again from a reporting standpoint it's not quite right We had another one down here I believe is that the only one we had? I thought there was another one Oh there it is the 250 right here for Sam the guitar man So those two actually are understating my accounts receivable And should be reported as a liability The liabilities are also understated So that's the adjustment that we're going to make in this case Notice if I go up to this one Anderson guitar we did the same thing here with the $300 And then we made an invoice that applied the credit to it But this one's not a problem because even though we got the prepayment in advance We then entered the invoice in time or before the cutoff date So after the invoice is entered then we're good no problem The only reason these two are a problem is because as of the cutoff date 228 We still have this negative receivable So that means the system works great from a bookkeeping standpoint But there's this timing difference And on a periodic basis whenever I do the reporting I'm going to go in here and make the adjusting entry Now notice if you're small business Then you might not need to do this If you're a Schedule C type of business for example Then you might just be reporting a Schedule C on your taxes And that's what you're generally doing These are balance sheet kind of issues right now And so they're not going to affect the income statement So if it doesn't bother you from a bookkeeping side You might not need to do it But if you want to report things exactly properly For financial reporting or if you have a taxes that you need to report A balance sheet for like a partnership or an LLC or something Then theoretically you should increase the receivable And then increase the liability So that's what we will do here to make it correct on an accrual basis So I got 200 I'm just going to go through here and see if I have any of these negative receivables in this report Here's the 250 plus the 250 So those are the two I need to account for So what needs to happen? The accounts receivable needs to go up by that amount Now I could do that with a journal entry And I also need to record a liability I could do that with a journal entry company I could go down and make a journal entry Or since there's only two accounts affected I can do this with a register So let's do that and we'll look at the journal entry after List chart of accounts Now I could use the accounts receivable register But because it has the customers kind of tied to it For the sub ledger it gets a little bit confusing to use that one So since the other side is also a balance sheet account I'll use the unearned revenue as the register Now here's the unearned revenue We set one up in a prior presentation If you don't have it set up You want to set it up as an other current liability If I right click and edit it We can take a look at it So right click and edit So it's set up as an other current liability Unearned revenue account And then I'm just going to double click to go into the register It's a liability I'm going to have it go up as of 228 The cutoff date And it's going to be increasing by we said 450 And then the other side is going to go to accounts receivable Accounts receivable And it's going to be an ADJ entry Now QuickBooks won't let me post this however Because I'm posting to accounts receivable And QuickBooks is going to say No you need to post to a customer Or your sub ledger is not going to match So let me just show you if I sit and tab It says please choose a customer When using accounts receivable So I'm going to say okay Then I can't add a customer unless I choose the splits line So I can split it right here Which gives us the customer field on the right Now you'll recall there were two customers That were impacted that made up that 450 I could use those two customers But I don't want to do that Because I don't want to mess up and have journal entries In their activity for the bookkeeping side of things There's a couple ways I can deal with this One I could say maybe I set up another accounts receivable account And I post to it So I don't mess up the sub ledgers for the customer detail However that's kind of a problem Because I don't want to set it up really As another accounts receivable type of account Just the name accounts receivable Because if it's an accounts receivable type account Then QuickBooks is going to set up a whole another customer Sub ledger for it Which is also going to confuse things So I don't want to do that I could set up another account That's called accounts receivable for adjusting entries And make it another current asset account But then it won't be exactly next to the accounts receivable account Or maybe I'm going to say over here I use the fact that I'm just going to apply this to another customer I'm not going to use the actual customers Because I don't need the detail of the customers I just want to choose a default customer So QuickBooks lets me record it So we made one called ZZZ adjusting entries Which is going to be at the bottom Hopefully doesn't bother the bookkeeper So let's go ahead and then say record it I'll show you what I mean here And we can go then to the chart of accounts Not the chart of accounts, not that Actually I could double click on this Just so you can see the journal entry Here's the journal entry I'm going to copy the adjusting entry into both sides And so again this is different than what you'll see In accounting courses because we're kind of solving A different problem approaching it a little bit differently Than the standard book problem for unearned revenue Just to be aware of that Save it and close it Save it And then close in that out And then let's go back to the balance sheet So now if I go into the balance sheet As of the cutoff date double clicking on it We're now at the 23-5-151-50 After that adjusting entry And that was an adjusting journal entry That we put in place The other side not going to the income statement But rather the balance sheet Which again is different from the accounting You know the accounting course problem That you would see related to this And we made unearned revenue There it is unearned revenue for 450 Liability account goes up Because we owe the people this money But this liability account isn't tied To the sub ledger for the customers Who are the people that we owe So if I double click on this There is the 450 Closing that back out If I go back up to the AR here Notice the sub ledger has been changed to Going back to the customer detail If I go down to the bottom of the sub ledger It's now still tied out 23-151-50 Ties out to the 23-151-50 It has to tie out because QuickBooks Forced me to add a customer And instead of adding the customer up top Like Eric Music Would result in us having that detail In Eric Music Which would kind of annoy the accounting department I made another customer down here So that all that junk is just going to go down here And net itself out in this Adjusting entry customer At the bottom So in other words if I go into the customer center Then and they're working on Eric Music And they enter the invoice They're not going to have this funny Entry in there that's going to mess them up It's not going to tie out to an invoice Instead it's down here in this other account Which is still kind of annoying But hopefully not overly so So closing that back out Then if we go back to the balance sheet So that looks good Now this works perfect for the cutoff date As of February 28 But now I have this 450 on the books And so I don't really want that there going forward I just want that to be the case As of the cutoff date Because it's proper as of that date But what the accounting department was doing was fine It's just there's this timing difference That we had to fix So that's this timing difference That I want to reverse it As of the first day of the following month So we're going to do a reversing entry To just reverse what we did To hopefully get us back to where we were before Due to the fact that there's nothing wrong With what the accounting department is doing It's just there's this timing difference That we wanted to account for So next time we'll do an adjusting entry In essence reversing this back out Let's see what we have thus far Journals, accounting and taxes Let's take a look at the journal report And make it as of 022823 The cutoff date to 022823 And customize it We'll say that we're going to go then To the filters to filter the journal Let's transaction detail And let's just look at the journals And then fonts and numbers Let's bring that up Let's just do 11 this time Okay, yes and okay So here's all the journal entries That we have entered thus far As of the cutoff date These are just the adjusting entries Because no other journals were entered As of this time The last one we did Was that adjusting entry for the 450 Which is down here We will do a reversing entry for it So if I go to one period up The next day we will add this To the reversing entry column here We'll have a reversing entry for it This is one of those adjusting entries That we need a reversing entry for Let's go to the reports dropdown Check our numbers And the accounting and taxes Trial balance changing the date From 020228 Let's not 0120228 To 023 What are you doing? 010123 To 022823 There For crying out loud And then fonts and numbers Changing it to 14 Okay, yes and okay So here's where we stand As of the cutoff date That being 228 So you can check your numbers See if those are tying out Let's bring it on up to 331 Just to include the reversing entries So 033123 This is including the reversing entries Thus far What we have done thusly far So as of now And that's where we stand The two legs of the debits in credit