 QuickBooks Online 2023. Adjusting entry. Accounts receivable. Sales. Get ready to start moving on up with QuickBooks Online 2023. Here we are in our Get Great Guitars practice file. We started up in a prior presentation using the 30-day free trial. We also have open the free QuickBooks Online sample company. If you want the two open at the same time, 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. Use the Incognito or another browser. You can open Incognito if using Google Chrome by selecting the three dots in the browser Incognito window, typing into the search engine, QuickBooks Online Test Drive. We're using the sample company to compare the Accounting View, the one Get Great Guitars is in, and the Business View, the one the sample company is in. Toggle between the two views by going to the cog up top, switch the view down below. Let's open up or duplicate some tabs like we do every time. Right-click in the tab up top to duplicate it. We're going to duplicate the duplication process, duplicate again. Go to the first duplicated tab that's in the middle and then down to the reports on the left, opening up the balance sheet reports. Surprise, surprise. Notice that if you're in the Accounting or Business View, I mean, the Business Overview, that's where the reports are located in that particular view just for your reference. Back to the Accounting View and Get Great Guitars. We're on the tab to the right, reports on the left, opening up the profit and loss. Of course, closing the hamburger, changing the range 010123. Let's go to 022823. I'd like to see it on a month by month, side by side, run it to refresh it. There we have a Jan Feb tote. The Feb 28, that's our cutoff date. Going to the tab to the middle, close up the burger, change the range 010123. Tab 022823. Hit the drop down to see side by side, run it to refresh it. There we have Jan and Feb, our cutoff date, our adjusting entries that we're putting in place are going to be as of February. Remember, adjusting entries will be done at the end of the month or the end of the year. In our case, we're doing them at the end of February. That means February 28, that's our cutoff date. All right, now we're looking at the accounts receivable. There's two things that could happen to the accounts receivable that we're going to focus on at least with regards to the adjusting entry. One is the timing of when an invoice has been put in place, and the other has to do with those deposits that are going to be in place. So let's go to the tab to the right. I'm going to right click on the tab to the right and duplicate it to take a look at the sub ledger related to the accounts receivable. Going down to the reports on the left-hand side and closing the boogie, I'm going to scroll down to who owes you reports, and let's look at the customer balance detail report. This is kind of like the sub ledger for the accounts receivable. So that looks good. Now note, you'll only have accounts receivable if you're on an accrual basis. Remember that the revenue cycle will end hopefully with cash going up at the end of the cycle. If you're on a very simple system due to the industry you're in, you might just record revenue with a deposit type of form, possibly with the bank feeds if you're getting paid by a platform like a YouTube, or you might have a cash register situation where you collect the cash and then make the deposits, or you might be in a situation where you have to do the work, invoice the clients, that's when you have to track the accounts receivable that will be driven typically by industry. Accounts receivable is an accrual account by definition we're deviating from a cashed based system. So now we're tracking the accounts receivable in the sub ledger and we could have instances then where we get paid before we actually do the work. That's one thing that could happen with the receivables. That's when we ended up with this negative kind of amount for Eric music. We'll talk about that one later. That's like an unearned revenue kind of issue with a little bit of a twist on it. The other kind of issue, the one we're going to deal with now with relation to accounts receivable is a timing issue. And the example we're going to have here, note that revenue is recorded with QuickBooks when we enter the invoice, but it's possible that we did the work before the cutoff and didn't enter the invoice until after the cutoff. Meaning the fact that revenues, the invoice is the closest form to the point in time that we did the work revenue should be recorded in a cruel basis when we do the work, not necessarily when we enter the invoice. So you can imagine, especially in a job cost situation where we did the work before the cutoff sometime in February, but we didn't enter the actual invoice until March. So generally then, to be on a perfect accrual system, you would have to pull the revenue from that invoice back into before the cutoff, back into February. That's going to think that the situation will imagine here. This might not happen all the time for like small businesses. You might not worry about that too much. But when you're in an auditing type of situation that that timing difference is revenue being recorded in the proper period when the work is done is an important difference. If people were trying to distort their financial statements, for example, then oftentimes they play with the timing differences in terms of was revenue recorded in the proper period, for example. All right, so let's let's do that. To see this fully, I'm going to actually enter a transaction that happens in March. And then that's the transaction that we'll imagine we'll pull back into the prior period. So I'm just going to enter a normal journal entry just to show what I'm doing here. I'm going to enter a normal journal entry. It's going to be with an invoice. And let's say it's going to go to Anderson guitars, Anderson. And let's say that it happened in March, let's say like March 5th. So 03052303. Let's keep it at that 030523. Okay. And so then that's after the cutoff date. But we're going to imagine that the actual work was done before the cutoff date. You can imagine this most clearly with like a job cost system, where you're trying to take the time from like your staff and enter it into the system. It's quite possible that you're going to enter the time into the system at one point after the cutoff date when the work was actually done before the cutoff date, because you had to collect the time before you invoice the client. But we're going to do it with an inventory situation just because that adds a level of complexity with having to track the inventory on the invoice. So let's go down here and say that it was an ELP that was sold. So it's an ELP. That's a guitar epiphone. We're going to say one of those. So here's our transaction, normal transaction here. This is going to be what's going to happen. It's an invoice that's going to be recorded after the cutoff date, even though we're going to imagine we delivered the guitar before the cutoff date for whatever reason. And so we have to pull it, we have to pull it back into the current system. So in March, let's hit, let's hit the location and changes to our generic 5%. It's going to record accounts receivable increasing AR by 525, including the sales tax and the sub ledger for Anderson guitars. The other side's going to go to revenue, but only for 500. The sales tax is going to be increased by 25. The inventory, that's why we did an inventory item to deal with the added level of inventory complication. Inventory is going to go down by the amount driven by the item, which I think it's like $400 here. And the sub ledger of inventory is going to go down in units and the cost of goods sold, the expense related to consuming the guitar is going to go up. The net impact on net income will be the revenue of 500 minus the cost of goods sold. Let's save it, close it, check it out. So we'll say, all right, let's save it and close it. So if I go back to my balance sheet, let's up the date range to the end of March 03 31 23 and see that side by side. So now in AR accounts receivable in March, we've got this invoice that happened in March, but the problem is that it should have been recorded. We think the actual work was done before the cutoff. That's the issue. I'm going to go back the other sides on revenue. So if I go over here and I change the rate to 03 31 23, the range, the rate, the range and run it. So now we've got our revenue revenue here for the 500 minus the cost of goods sold 400 that happened in March again. So that's going to be, but we think that revenue should have been earned before the cutoff. You see the issue. You can see the temptation of certain people trying to manipulate their books might try to deal with this timing differences to have things reported in March before or after the cutoff, depending on how they're trying to manipulate the books. But even if they're not trying to manipulate the books, you can see how it could happen naturally in a job cost type type of system just based on the billing process, for example. And then of course, the other side is going to the sales taxes is going to have an issue with regards to sales tax. And then the inventory is also going to have an issue with it because we had, if I go into inventory for March, we've got this decrease of the inventory of the 400. And we saw the cost to goods sold on the income statement. We also have a sub ledger for inventory tracking by unit. So if I go to the tab to the right, right click on it, duplicate it and go to my reports down below. It's taken a long time to duplicate. You're testing my patients here. Quick books. I'm going to any case reports on the left. Let's go to the inventory valuation summary. And so there it is broken out by the units that we have. And the 9698 should tie out to what we have over here on the balance sheet for inventory 9698. Let's go back on over, change the date up to 033123 and see it as of that 4346. And there's the 4346. Okay, so now the fact is, and you can most clearly see this on the income statement, we're saying, Hey, look, your income is wrong, because this actually happened, we shipped the goods in February and you've recorded the invoice in March. So we need to fix that. Now you might say, well, the easiest way to fix that is to just to go into the actual invoice here and go into that invoice and just change the date to whatever date you think is the proper date. But we don't normally want to do that because the invoice is going to be tied to other forms number one to the receive payment and so on and so forth. And for whatever reason, the accounting process is doing what they're doing, assuming it's a legitimate process and they're not trying to manipulate the system, there's a reason why they're entering it when they entered. So we don't really want to mess up whatever system they're using. For example, if it were a job cost system, and they're entering this whenever they do their billing, which happens every two weeks or something like that, we don't want to say, okay, we're just going to pull that, we're going to mess up your whole timing system so that we can pull that before the cutoff date. Instead, what we want to do is pull over this whole transaction to February with a journal entry and adjusting journal entry, and then make the financial statements correct as of the cutoff date, and then we'll reverse it with a reversing entry so we don't mess up the accounting department. So that's what that's going to be the concept here. Now, this is a more complex adjusting entry and reversing entry. So sometimes it's useful to actually think about this with an Excel worksheet, just to think about, let's think about what the journal entry is so that I can enter this into the system. So if I have an invoice, and I'm going to try to make a journal entry, what's that journal entry going to look like? So let's just pull up Excel so we can think about it. I'm going to go to the triangle, right click, and format this thing, and go to currency, bracketed numbers, no dollar sign, we'll keep the decimals. Okay, so I'm holding control and scrolling up. I'm going to do this with debits and credits because now we have a fairly complex journal entry and debits and credits are easier to see, but I'll also explain it in terms of increases and decreases. So what happens with this invoice that we're going to have to record in journal entry format in our adjusting entry? Well, we know accounts receivable, AR, I'm just going to abbreviate, goes up by the full amount. Let's keep that till the end. We know that sales goes up or revenue is going up by the amount that we charged 500. So I'm going to put that as a credit. With a negative, that's how I'm going to represent credits with a negative. I'm going to make the whole thing bolded to. And so that's a credit. And then we know that we know that sales tax payable is going to be 5% we're saying. So whatever we charge, it's going to be this times 0.05. There's the $25 and the accounts receivable then is the plug, the negative sum of that. So we're going to be collecting or we're charging 525 sales is 500 plus the sales tax. Then we know that cost of goods sold, cost of goods sold is going up by 400 and inventory is going down by 400. So there's the transaction. There's actually a lot going on with it. There's also some more issues involved with this, because I have to think about the sub ledgers in particular accounts receivable and the inventory account have sub ledgers. So accounts receivable, the sub ledger is for Anderson. Now QuickBooks won't let me post something to the receivable without creating a customer, which is usually good. But when you do the adjusting entries, it's kind of bad because I don't want to hit the sub ledger. I don't want to mess up the sub ledgers. I want to enter it as a adjusting entry and then a reversing entry. So one way we might do that, there's two kind of approaches. You might make another accounts receivable account, possibly making it as just simply a other current asset account, so that you can then show your adjusting entry in that account. But that's not perfect because it's going to look a little bit ugly on the financial statements because it won't be in the same account and you're going to have to use another account type in order to avoid the sub ledger. The other thing you can do is create, and this is what we will do, a customer that is designed just for adjusting entries, like customer ZZZ is what I'm going to call it so that it's on the bottom of their customer list and hopefully doesn't mess anything up. And then the inventory also has a sub ledger, which will be thrown off if we report something to it. But we should be okay with that one because it's not going to because we'll reverse it. So it doesn't force us to use the sub ledger account. It doesn't force us to use an inventory item, in other words, in the same way that the accounts receivable does. So that's actually good in this case because it doesn't force me to mess up the sub ledger or do anything funny to it when I do the adjusting entry. Sales tax is another one where you might be concerned about it because there's a sub ledger for the sales tax because we're using the widget to pay off the sales tax liability. But I believe we're okay with the sales tax if you're concerned with that sales tax account. Again, you might make another account called sales tax payable adjusting entry or something so that you don't actually post something to the sales tax account itself. But I think we're okay with that. So I think I'm going to try to post to the sales tax payable account itself this time. And we should be okay. If you're concerned with that, you can you can make another account. So let's take a look at that in practice. So now I'm going to make an adjusting entry. Now, last time when I did the adjusting entry, I went to the register to do it. But this one's too complex to do that. There's not just two accounts affected. There's too much going on. So I have to use in my opinion, it's easier to use just debits and credits, just enter a journal entry. So I'm going to go back to the first tab and just enter a journal entry. And I'm going to go to the plus button, journal entry. And I'm going to reconstruct this thing that I just made 228 as the cutoff date to 28. And then accounts receivable. So accounts receivable is going to go up. And I'm going to make it go up by the 525, the 525. And now I'm going to not put a name here just so you can see the problem. It won't let me record it. I'm almost positive. And so the next one is going to be the sales. So I'm going to sales of product. So there it is. That's going to be for 500. I want to put in the description every time adj entry. Let's do a capital adj entry. I'm going to copy that. Boom, boom, boom, boom, boom, boom. And then this is going to be, I'm going to put it to California department. This is the one I'm kind of a little bit, a little bit dubious about putting it to that account. But I don't think it really will cause us a problem as it as it would in the accounts receivable or accounts payable. So I'm going to keep that and then cost to get sold cost of goods sold. Why does it have a number one one that I'm just going to go cost good sold. This is going to be 400. Okay. And then the other side goes to inventory. I'm very skeptical posting things to inventory in general. But here I'm okay with it because I'm going to, I know I'm going to do a reversing entry. So I know this is going to throw me off from my sub ledger, but that's okay. Then I'm just going to reverse it. Okay. So I don't think it's going to let me record it because of this item here. Let's just show that just to show you. It says when you use accounts receivable, you must choose a customer. Now I could put Anderson over here because that's who we sold to it will let me record it. But then when I go to the detail for Anderson, let me show you if I right click and I add I duplicate this thing and I go down to the cut the sale. I'm going to close this out because I have it in another tab. I go down to the sales and I go into my customers for Mr. Anderson. Then I'm going to have this journal entry in here. I don't want a journal entry in here. That doesn't look right. I should only have invoices, estimates, payment forms and sales receipts in the customer detail, not journal entries. So no matter what I do, even if I reverse it, it's going to look funny and on the bookkeeping side of things and they'll be mad at me. And I hate when they're mad at me for that kind of thing. So I'm not going to do that. What I'm going to do is I'm going to make another one that I'm going to sneak this thing down at the bottom so they don't see it and then they won't be mad at me. So I'm just going to make a customer of ZZZ and then I'm going to put that over here and then save it. So now it'll still make this messed up customer, but hopefully it'll be at the bottom of the ledger and they'll totally never even see it. It won't bother anybody at all. That's my goal. And then when we reverse it, it'll reverse out down there. Let me show you what I mean. Let's save it and close it and then tab to the left. So now if I go to my customer center, which by the way, if you're in the bookkeeping view is down in the get paid and pay area customers right there. So then if I go into here and I look at my customers, let's do it this way, then it's not going to be an Anderson. It's not messing up Anderson stuff at all, even though it's related to Anderson. It's got the ZZZ customer. They're going to be like, where did that come from? It's just don't worry about it. And so it's got this journal entry, which again, doesn't look right because it should be an invoice, you would think. And when I make the other reversing entries, they're not going to link together in the same format as when you have a invoice and a payment. That's the problem, but it's down here where it doesn't, it shouldn't really mess anything up. So we should be okay. That's my theory about it at least. So then we're going to go to the reports and see what happens, run it. So now we've got the accounts receivable has been adjusted. So now if I go into February, we've got this journal entry that was put in place. If I expand this to 03 31 23, we can see that as of March 5th, it will be in there two times. So now it's in there twice, but it's correct as of the cutoff date. We put it in before the cutoff date. That's good. Now it's duplicated after the cutoff date. That's why we're going to need a reversing entry to make sure that it doesn't mess things up by that point, which we'll do next time. The other sides on the profit loss, the P and the L. So then I can say, okay, if I go into the revenue here, we can see that there it is with the adjusting entry. We can see that we reversed it and more or we didn't reverse it. It's in there twice as of March. So that's why we're going to have to reverse it. The other sides back on the balance sheet, back to the balance sheet and the payable account down here for the taxes. If I go into that, now I've got this journal entry in the taxes, which I don't think it's going to mess up my sub ledger reports when I use the tax widget thing or anything, but I'll reverse it. So everything I believe should work properly there. Again, if you're concerned about it, you can make another account called like sales tax payable adjusting entries. So you don't have to put it into the detail in there and it should work fairly well because it'll just be an other current liability account as opposed to doing that with accounts receivable. Because if I had to create another account for accounts receivable to post to not to mess up their sub ledger, I wouldn't want to make it an accounts receivable type account because then it'll have the same sub ledger issue. I would have to make it like an other current asset, which means it would be down here somewhere, not even next to the receivable. That's why it's a little bit funny to do that with a receivable. All right. And then inventory, if I go into the inventory, I've got this journal entry that happened for the inventory right there. And the inventory is going to be out of whack. Now the whack is out. We whacked it out of something, the thing that it was in, because if I go to the inventory report right here and run it, we're now at 4346. As of March 31st, if I go back on over here, it says we're at 3946. Obviously, the difference is that journal entry that we entered, right? 3946 minus 4346, which is the $400 difference. So we're going to have to reverse it and then we'll be back, we'll whack it back into place. We'll whack it into place instead of out of place. So and then the cost of goods sold, of course, has been recorded here February. There's our adjusting entry. And so there's the other side, or it has been recorded twice here. So now we've got everything. We've entered the other, the whole thing with a journal entry as of the cutoff date, making things correct from a financial statement perspective, as of the February 28th, the cutoff date. But now it's going to be duplicated in March and so therefore we're going to have to do a reversing entry and we'll do that next time. So that is that. Let's open up our reports. So if I go to the, let's just go to the tab to the right and I'm going to open up the hamburger, scroll down to the reports on the left. If I look at my journal reports, journal reports, now we've got our adjusting entries. Let's make this 022823 to 022823, run it and there's the adjusting entries and we're going to customize it up top to look at the filters and just look at the transaction journal type of entries. And there's the entries we've made. There's the longer entry we just did. We're going to reverse it next time. Now let's go to the tab to the right, open up the hamburger reports, look at the trial balance to see where we stand. Trial balance and we've got to see where we stand 010123 to 033123 side by side with the months, run it. Okay, this is where we are as of now. If you're standing where we stand, we're like we've got six legs. We're like one of those animals that are on that avatar where they all have six limbs except for the people for some reason. We're like there. So we're standing on our six legs and if your six legs are standing in the same location, that's good. If not, we'll do another journal report at the end of the adjusting entries to double check and drill down on any differences.