 QuickBooks Online 2024, adjusting entry, accounts receivable, sales, revenue, or income. Get ready and some coffee because we're meeting the deadline with QuickBooks Online 2024. First a word from our sponsor. Yeah, actually we're sponsoring ourselves on this one because apparently the merchandisers, they don't want to be seen with us. But that's okay, whatever. Because our merchandise is better than their stupid stuff anyways. Like our crunching numbers is my cardio product line. Now, I'm not saying that subscribing to this channel, crunching numbers with us, will make you thin, fit, and healthy or anything. However, it does seem like it worked for her. Just saying. So, subscribe, hit the bell thing and buy some merchandise so you can make the world a better place by sharing your accounting instruction exercise routine. If you would like a commercial free experience, consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com. Here we are in our Gik Ray Guitars 2024 QuickBooks Online Sample Company 5. We set up in a prior presentation, opening up the major financial statement reports as we do every time. The reports on the left in the favorites. We're right-clicking on that balance sheet to open a link in a new tab. Right-clicking the profit and loss to open a link in a new tab. Right-clicking the trial balance to open a link in a new tab. Let's tab to the right, close up the hamburger, and we're going to change that date range. Oh, one, oh, one, two, four, tab, oh, two, 29, two, four, tab. Let's see it on a side-by-side for the months. Run it, and then tab to the right, close the hamburger, change the range. Oh, one, oh, one, two, four, tab, oh, two, 29, two, four, tab. Seeing it on a month-by-month side-by-side. Run it, and then we'll tab to the right, close up the hamburger, and change the range again. Oh, one, oh, one, two, four, tab, oh, two, 29, two, four, tab. Months, refresh the report. Tabbing to the balance sheet. So now we're doing our adjusting entry process. Once again, the process where we're making our financial statements as close to the accounting basis as possible, typically an accrual basis, but possibly same kind of thing for if a cash-based system or a tax-based system if you're doing it for taxes. We're now looking at the accounts receivable. Our cutoff date is the end of February 229, and there's a couple different issues that we could have with accounts receivable that we will touch in on. One has to do with unearned revenue for QuickBooks. So within QuickBooks, for example, if we get paid before we do the work, then typically we would have to put that into a liability account, often called unearned revenue. The problem there is that the unearned revenue is a liability account that isn't supported by the subledgers and the internal customer center. So oftentimes in QuickBooks, we will end up having negative accounts receivables, which we can call as credit balances in the accounts receivable that we can apply to future customers, which isn't exactly proper for the reporting on the financial statements, but works well from an internal perspective. That situation is something that you might not have to adjust if you are sole proprietor reporting on a schedule C because it's strictly a balance sheet adjustment, and if you're sole proprietorship, you mainly are looking at the income statement to prepare your taxes with possibly. The other situation we have with accounts receivable is that it might not be recording the income in the proper period, even though we're using the invoice to record the income. So before we jump into that, just remember that when we're looking at accounts receivable, we're looking at something that is an accrual account. So that means we had to do the work first, build the client, and then track the receivables that we're going to be collecting on at a future point. So let's look at a flow chart to get an idea of that. This is the desktop flow chart that we're using for online purposes, but the flow is going to be the same. So remember we're in the revenue cycle, and the revenue cycle could have different formats depending on the type of industry. If we're working in gig work or something like that, we're getting paid by YouTube or something like that, then we might simply wait until the money clears the bank and record the revenue with the form of a deposit form. That would be like the easiest thing to do, and you can only do that if you're in the type of industry to do that. If you're at a cash register, then you have more of a cash-based system because you're going to be recording the revenue typically when you get paid at the same point in time, which you can imagine at basically a cash register situation. So you're not going to have any accounts receivable there either. But if you're in a system where you have to have the work done first, such as a law firm, bookkeeping firm, landscaping, many service type of companies, then you're going to have to send out the invoice. You're going to have to bill for the work that was done in the past and send out the invoice. So usually the invoice then is the point in time that we're going to be recording the revenue. Why? Because the invoice is closest to the point in time. We actually did the work. If we did the bookkeeping work and then turned around and invoiced right after we did the work, the invoice would be the form closest to when we did the work. But unfortunately, that's not always how it is. If we're in an accounting system, for example, we might have partners. This would be same with a law firm. And then we have staff, right? The staff are going to be the people that do all the work. The partners whine and dine, go to fancy restaurants and pick up clients and whatnot. They're the money makers. And then basically all the staff does all the work, right? But in order to bill the customers, the partners are going to have to pull together all the work that the staff did in the last week, two weeks or month, and bill on a monthly basis. That means when you enter the invoice, it's not actually as of the same date that the work was done because the work was done in the prior period. So that's when we might have this adjusting entry problem. We might say, hey, look, the cutoff is not exactly right because the invoice didn't properly report the income when it was actually earned because the invoice was entered in our case, March, when the work was done in February. Let's see what that looks like. I'm going to go over here. We're going to do this transaction with inventory to make it a little bit more complicated, although it's more likely to happen in like a job cost system as we discussed. But inventory will be a complex journal entry. So we want to see the more complex transaction. So let's first imagine that the invoice was made in March. So I'm going to make an invoice in March where the work or the inventory was shipped. We're going to imagine in February. So if I hit the dropdown, we're going to make an invoice. This isn't an adjusting entry process. This is to set up the scenario. So I'm going to say this is going to go to Anderson. Let's just say Mr. Anderson is causing trouble again. Mr. Anderson. We're going to go, this happened on 03, let's say, 05 to 04. So after the cutoff date, the invoice is happening. And then down here, we're going to say that the product was a good old ELP, one of our favorite guitars we sell, $500 taxable. And there's our standard invoice. I'm going to adjust the tax, however, to our generic 5%, as has been our custom. So there's our invoice. Normal invoice we've seen in the past. What's this going to do? Increase the accounts receivable by the 525 at the point in time that we entered the invoice. The other side going to Revenue 500, the difference sales tax payable 25, and the inventory going down by the item being driven by the amount that's driven by the item, cost of goods sold, the expense related to the sale of the inventory going up, net impact on net income, $500 sales price minus the cost of goods sold, and the sub ledger for the accounts receivable will be impacted for Anderson, breaking it out by customer, and the sub ledger for inventory will be impacted by dollar amount as well as units of inventory. So a lot going on with the invoice. Let's go ahead and save it and check that out. So we're going to say save and close. And then we'll go into our balance sheet. Let's increase the date range to 033124, run it. So we can see that we put that invoice in place in March so I can go into the accounts receivable just to double check that everything is properly recorded. Here's the 525 sales price plus the taxes, sales tax. And then on the profit and loss, let's change this one as well to 033124, run it. So we can see in March we have the $500 does not include the sales tax. The sales tax is going to be over here in the liability section. So it's going to be included in our sales tax payables, which are going to be these accounts in here. These two, we broke it out between the two sales tax accounts. And then the inventory is going to be going down. So if I go into the inventory, it's decreasing by an amount not on the invoice, but the invoice is saying what it's going to be decreasing by. Let's go back. Let's go to the income statement. And then we have the cost of goods sold here. There's the 400 net impact on net income as well as gross profit, 500 sales price minus the cost of goods sold, $100. And if I go back to the balance sheet, we also have to deal with the sub ledger for accounts receivable. I want to emphasize that because that causes a problem if we're trying to do journal entries to an accounts receivable account. We're going to tap to the right, right click on it, duplicate it. And we're going to go into then the reports on the left hand side, close the boogie, scroll down, and we're going to who owes you. Let's look at the customer balance detail. Let's say customer balance detail. And so now we have Mr. Anderson. There's the 525 on 35. The total for the accounts receivable 22701 50 ties out to what is on the balance sheet or should 22701 50. Also, there's a sub ledger for inventory, which we also have to be mindful of if we're going to record a journal entry to inventory. So let's make another report, right click, duplicate another report and look at the inventory sub ledger reports on the left. Boogie closed inventory valuation summary. Let's check that one out. So there it is. So so now we have this by unit and the assets. And this is the wrong date there. Let's go as 033124. And so now we're at the 4346. That should tie out to what's on the balance sheet of inventory 4346. Also, from a bookkeeping standpoint, the AR is typically tracked internally. So if I go internally to the sales area or customer center, then I don't want to mess up like the invoice tracking over here. And I don't want to mess up the customer information for, you know, Anderson guitar for our open invoices Anderson. So if I'm entering a journal entry, is it going to mess up the internal forms within the detail on the bookkeeping side? Another thing to kind of be aware of. Okay, so strictly from a journal entry standpoint, we're going to imagine that on the income statement, this 500 is something that was actually shipped. We're going to imagine in February, which again is more likely to be the case in a job cost in a job cost kind of system where we bill someone every other week or something like that. But again, we're doing it with inventory because it'll be more complex. And this will be the more complex scenario that you can trim down to an easier scenario because we're dealing with inventory here. So we're going to imagine this should be in February. So because that's when the work was done. So what you might say is, well, why don't I just go into this number here and then just change the date to bring it back to February. And we don't typically want to do that because we don't want to mess up the accounting cycle. Whatever the accounting cycle is, if it was a billing cycle or their shipping cycle, we want to have an audit trail that is consistent with that. So we don't really want to go in there and just change the date typically. What we want to do instead is make it a journal entry, pulling this back into February. But you might ask, if I do that, then it will be entered twice as of March 5th. Will it not? It will. That'll be a problem. So then we're going to have to do a reversing entry as of March 1st. So we're going to leave the accounting system as is, not mess up the accounting system, but do a journal entry to pull it into the proper period. And then we'll do a reversing entry to put it back to the normal process so that we can get financial reporting done properly and not mess up the normal cycle of whatever is being used on the accounting side. Okay, so to do that, let's first kind of think about what's the journal entry behind this invoice. I'm going to open up Excel. This one, we kind of have to do debits and credits because it's kind of a, the invoice has a long journal entry. And if I'm going to put that in as a journal entry, we're going to run into problems. So let's select the entire worksheet just to analyze this. I'm going to right-click and format the sales, make it currency, negative numbers bracketed. We'll keep the dollar, no, no dollar sign. We'll keep the decimals. I'll make it bold, hometown, font group, and bold. So the invoice, let's just imagine I go into this invoice again and we'll say let's go into that invoice and the cost was 500. So what's the journal entry with this invoice? Well, we know that accounts receivable, let's just call it AR is going to be debited. I won't put debit or credit columns. This is the debit column was 520. And we know that sales, let's say sales or revenue is going up, I think by 500. Is that what we charged for it to do? Let's see, going up by 500. Okay, so we're going to say 500 credit 500. And then we have sales tax payable, which went up by we said generic 5% that we're charging. So it's going to be equal this times .05, 25 sales tax. That means that accounts receivable is going up by the negative sum of these or 525. So 525 accounts receivable goes up, sales revenue goes up by 500, sales tax goes up by 25. Also, we've got the cost of goods sold, which I think is not on the invoice, but is driven by the item. So I could go close this out and say, okay, what was the cost of goods sold $400. Okay, $400 cost goods sold and inventory is going down inventory is going down by 400. Okay, so this is what happened in March. I need to bring it back into February. So I can just make a journal entry that looks just like this, I can just enter it as a journal entry. And I can do that, but I'm going to run into a problem with the accounts receivable because it has a sub ledger account. The inventory also has a sub ledger, so that's kind of like questionable as to what I want to do with that. And the sales tax payable could have a sub ledger related to it as well. So there's a lot of iffy situations here with it. Now the biggest problem is the accounts receivable because QuickBooks won't even let us post to accounts receivable with a journal entry. And if I post to accounts receivable with a journal entry, it's going to show up in the sub ledger internally in the customer center. And that's going to be kind of ugly over time. It'll have a bunch of journal entries in there under Mr. Anderson, and we don't really want to have that happen. So there's a couple of ways we can deal with the accounts receivable. One is that we can make another account called accounts receivable adjusting entries possibly, but we can't make it an accounts receivable type account because if we do that, then QuickBooks is going to want to make a sub ledger with it. So we'd have to make it an other current asset. So that's kind of an ugly solution, but it would work if that's the safest thing to do. So in other words, you can see this accounts receivable here. I would like to make another account that's subsidiary to it, but I can't really do that because I would have to make it an accounts receivable type account in order to make a subsidiary account, in which case QuickBooks would still want to track it, you would think, in the sub ledgers, which is what we're trying to stop from happening. In other words, I don't want QuickBooks to have to track the sub ledger in Mr. Anderson's customer center. So we'd have to make it as an other current asset, and therefore it's not exactly connected to the accounts receivable account. So the other option is we can say, okay, well, why don't I just post directly to accounts receivable, in which case QuickBooks will make me assign a customer to it, which I don't want to do. This is the downside, by the way, of QuickBooks forcing you to have a customer when you select accounts receivable. The plus is, why does QuickBooks make you do that? Because the sub ledger will not be thrown off. It'll force you to have a sub ledger that ties out. The downside is I can't do an adjusting entry and reversing entry because I have to as easily. So what I'm going to do, I could assign the customer, but if I assign it to Mr. Anderson, then I'm going to have, in Mr. Anderson's work here, in his sub ledger, I'm going to have these journal entries in there. And that'll be ugly in Mr. Anderson's account. So maybe I make another customer. This is the workaround. I make another customer. I call it like ZZZ customer so that hopefully it'll be at the bottom of the customer list and it won't bother anybody. But I have to choose some customer so that I have something there so it'll let me do the journal entry. So let me show you what I mean. If I go into the plus button, we don't want to enter an invoice because it's an adjusting entry. We're going to do a journal entry. So I'm going to say journal entry. And I have to use a journal entry. I'm not going to use a register because there's too many accounts. You almost have to use debits and credits in this case because it's complicated now. So it's going to be 022924, all adjusting entries as of the last day of the period. And then we're going to say accounts receivable. So I'm not going to put a customer on it first to show you that QuickBooks won't let me post it. But it's going to be going up by 525. I'm just going to call it ADJ entry. And then the other then I got sales tax payable or let's say sales is going to go up. So sales sales sale of product went up by 500. And then we have the sales tax payable. Now the sales tax we could actually take the sales tax is another kind of issue because note QuickBooks, when you use the sales tax widget creates these accounts by the name of the department that you're paying because you might be paying multiple different sales tax people. So you don't really need to break out the sales tax per department that you're paying. For example, in California, we might charge that 5% sales tax, which is a generic sales tax. It's higher in California usually depending on where you're at. But it might be broken out between state sales tax and then local sales tax, district sales tax, right? But we're charging 5% which will then be broken out between the different levels of state and local government which we will then have to pay out. So we could just select one of those state and local, one of these accounts and post to that because QuickBooks will not force us to have a vendor and we can reverse it and I don't think that will cause any problems. However, if you want it to be more transparent, you could make as we did here a sales tax payable adjustment account and you can see I made it as a subsidiary account. Or something else that I did this for. But we made it a subsidiary of one of these accounts so I can collapse it for external reporting purposes and that's one way that we can take a look at this. It would be nice if we can collapse all the sales tax accounts into a subsidiary account called Sales Tax Payable but QuickBooks actually won't let us do that it looks like because this account has been set up and is tied to the sales tax widget and they don't want us to make it a subordinate account which is kind of funny but in any case I'm going to use this account. So sales tax payable is going to be 25 and then we also have the inventory so cost of goods sold, let's say cost of goods sold was 400 and then the inventory went down. Inventory is going down. Inventory asset is here. Now inventory was the other one that's kind of an issue because inventory has a sub ledger. Now inventory QuickBooks isn't as restrictive of us. You can see that the sub ledger here ties out to what's on the balance sheet for inventory but it doesn't necessarily have to, unlike the accounts receivable which pretty much has to. Why? Because the accounts receivable forces us to add a customer every time I post something to it whereas the inventory does not. So I don't have to assign an inventory item when I post something to inventory. That means your sub ledger could be off from what's on the balance sheet. That's actually good for adjusting entries because it allows me to do an adjusting entry without messing up the sub ledger because there is no item related to this. This is an adjusting entry which I will then reverse once reversed will be back to the proper place. So that one is actually okay. So if I look at my problem areas, these two are actually fine even though you might think they're an issue and then that one is the one that we still have to deal with adding a customer. Let me show you. If I try to post this, I'm going to save and close it and it says no, something's not quite right. When you use accounts receivable, you must choose a customer in the name field. So it's like, ah man, I don't want to do that because I don't want to mess up the sub ledger but I have to. If I could choose Anderson, that's who we actually sold it to. But I don't need to choose Anderson because it's not assigned to Anderson. It's not what I need in my financial statements. I just need the account to be correct. So I'm going to make up another customer called ZZZ because that in alphabetical order should be at the bottom of the list. So ZZZ customer, I'm going to say. And I'm just going to set that up so that I post it all my adjusting entries to this customer that should be at the bottom of the customer list. Let's try that. So let's make sure I've got it right. So five, 25, 500, 25, 400, 400. So 525, 500, 25, 400, 400. Okay, let's save and close it and check it out. So if we go to the balance sheet and I run it, so it should pull into February. So if I look at accounts receivable, now I'm going to see that it pulled in the February. It's a journal entry. So this is looking funny in accounts receivable, right? Because accounts receivable should only have two types of things in it. An invoice increasing it and payments that pay off the invoice from the customer that decrease it. Now I have this journal entry in there for 525. So there's the 525 there. If I bring this back or if I bring this forward to March, you can see that it's actually in there two times now. So it's correct as of the cutoff date, but as of March 5th, when we enter the next entry, it's going to be in there two times. So this is one where we have to have a reversing entry because it's just a timing entry that we're putting in place. So we're just putting it in place to make the financial statements correct. And then we need to reverse it in order for it not to be doubled up by the time it was entered in the following period. In this case, March 3rd. So the other side, if I exit this is on the profit and loss, let's run that. And then we have in here in the sale of product in February, our cutoff date, we have the 500. This is just the sales price now. And if I increase to March, you can see that we have the two in here 500 and 500. So it's doubled up as of March, but is correct, correctly pulled into before the cutoff date as of the cutoff date. So then I'm going to go back and say, exit the other sides on the balance sheet in the sales tax payable. So we put it into our adjustment account here. So it's in a different account that just has the one adjustment in it. Sales tax payable adjustment. I don't see it there. K-Passo. Let me see. Did I put it into the sales tax? Okay, I see what happened. I put it into this account sales tax payable down here instead of the sales tax payable adjustment. So I'm going to fix that. I'm going to go into that number and then I'm going to go into the document, the form. And then I'm going to change this to sales tax payable ADJ. This one, this is the one I want. Boom. Okay. And then I'm going to save and close it. And then go back. So now I put it into this adjustment account, which is a subsidiary of this account. And let's go into that one and then say that we have, there's the 25 in that one. So remember, in that 25 might be broken out between the different locations, right? It's kind of nice to put it into its own subordinate account so that you can record the full lump sum because for financial reporting purposes, you only need like sales tax payable. You don't need to know the sales tax per location, typically. Okay, so then we have the inventory that's going down. So inventory is here. We put it in there as of February and we have this decreased at the end of the 400, which is a journal entry, which looks funny because inventory will typically be going up with a bill or an expense form, some kind of purchase form, go down with the sales forms of the invoices in the sales receipts if using a perpetual inventory system as we are here. If I change the date to the following month to three, you could see that it has, like the other examples, been entered twice now once with the journal entry. And then again, with the invoice after the cutoff date, let's go back. The other issue with the inventory is that as of February, my subledger will be off now. So inventory as of February is 4346. If I go into my subledger for inventory as of 022924, run it and pull out the trustee calculator for some trustee calculations, then we can see that we're at the 4746. And on the balance sheet over here, that's not the balance sheet. That's not the balance sheet. Over here for inventory in February, we're at the 4346, which is different by $400 because that's the adjusting entry. However, we're going to reverse it as of the first day of March by $400 and therefore we'll be backing balance in March. So you can see how the contrast between these two issues with the accounts receivable, they forced us to add a customer, which forced us to make the subledger correct, which caused us actually a problem because I don't really need the subledger to be perfect. I wanted the financial statements to be perfect and not have to add a transaction to the subledger, but they forced us to add something to the subledger for the customer. So we put the adjusting entry into that ZZZ account so it didn't mess up the books internally on the bookkeeping side. Whereas on the inventory, they didn't force us to add an item, which would be equivalent to adding a customer for inventory, an inventory item, in which case it was actually easier for us as long as we know what is happening because I didn't have to add an item which would add a tracking item on the subledger for inventory because we don't actually want to mess up the subledger for inventory. So we were able to do the adjusting entry and we'll do the reversing entry off subledger without messing with the items or the flow assumptions or any of that kind of stuff. Okay, so that's going to be that one. And then the other side is in cost of goods sold, of course. So if we go to the cost of goods sold, we can see that we have the adjustment made in February. So if I go into February, we pulled that in with the $400 journal entry, same thing. If I bring this up to March, then you can see it will be having entered twice. We entered it to make the financials correct as of the cutoff into February. It's in there twice as of the end of March. Therefore, we're going to have to do a reversing entry. So there's the transaction next time. We'll take a look at the reversing entry process for that. So I won't open the journals this time because we've seen that before. Let's just take a look at the trial balance to see where we stand at this point in time. So we'll go to the trial balance and I'm going to increase the date to, let's say, 033124. So you can see that what we have in March this time, we added another transaction in March. But really, we're checking our numbers for the period end of February because that's the period end of our financial statements in this scenario. So we have the, if your numbers tie out to these numbers, great if they do not. Try changing the date range. Sometimes it's a date range issue and we'll continue with the reversing entries next time. Next time.