 0 Accounting Software 2023, Reversing Entry, Accrued Interest. Get ready to become an Accounting Hero with 0 2023. Here we are in our Custom Zero homepage going into the company file we set up in a prior presentation. Get great guitars. We're going to duplicate some tabs to put reports in like we do every time. Right click on the tab up top so we can duplicate it. We will right click again so we can duplicate again. Back to the tab to the middle Accounting dropdown. We're opening the balance sheet. This is a comparative balance sheet. If you don't have it, you can open the normal balance sheet. Tabbing to the right, Accounting dropdown. We want the income statement. This is a comparative income statement. If you don't have that, you can open the normal one. Back to the tab to the left. We're continuing on with our adjusting entries. This time a reversing entry for the cutoff period, meaning we want everything to be correct as of February 28th in our case because that's the cutoff date. Then we're thinking after that date, is it necessary for us to do a reversing entry? In this case, we're going to say yes. We're going to do a reversing entry. Let's review what we did last time and think about why we might need reversing entries. Not every adjusting entry will need a reversing entry. It's only when you have those timing differences that you'll need to do the reversing entries. Last time, we were taking a look at our liability account down here for the $5,000 loan payable. We know there's a couple adjusting entries you might need to do with regards to loan payables. One is with the accrued interest. That's what we did last time. We'll deal with breaking out the short-term and long-term portion of the loan in a future presentation. To figure the amount of interest, we came over to our worksheet. The journal entry, by the way, was an increase in the interest payable, interest that we basically, oh, we've incurred, but we're not going to pay until the next payment that happens, which is happening sometime in March. If we go to the income statement then, we recorded an interest expense and expense for the $15 that we have not yet paid but have incurred because it's kind of like the rent on the purchasing power of the money. If you rented office space, for example, even if you didn't yet pay the rent, if you used the office space on an accrual basis, you would record the expense. Similar with the interest expense, we used the purchasing power of the money and therefore, we incurred the expense. The transaction, we made our report over here, our amortization table and we looked at the fact that the next payment, according to our amortization table, was $1,764.82 going to be paid in March. But it's for 30 days and 15 of those days happened before the cutoff date. So when we look at that journal entry, normally the journal entry would be according to the amortization table here. This would be the normal journal entry if we didn't do any, if we didn't interfere with our adjusting entry. Then the normal journal entry would be interest expense, debit for the $145.83 on the income statement. The loan would go down by the loan reduction, $16.89 to the loan balance would then result in being at the $3,381.01 and the cash that would be decreased is the $17.64.82 on the payment. That is what we would normally record. Now remember, if you're, the other thing I just want to point out is if we're trying to make the recording as easily as possible in zero, the breakout between interest and principal makes that difficult to do. So for example, you can see the payment is the same. If you make these electronic payments within zero, that way you're going to say, hey, it's going to come through the bank feeds and I can just record the bank feeds as an expense when they come through the bank feeds. But you have a problem and that is that there's two accounts affected, not just one. That's usually not too much of a problem because you might be able to work that into the bank feeds. But you also have the issue that these two accounts over here are going to change with each payment. They're not always going to be the same breakout even though the payment amount will be the same. So you can't really automate the system within zero on the bank feeds. So another method that you could use is you could say, hey, look, what I'm going to do is I'm just going to record the full amount, 1,764, to the loan account which will not account for the interest and then periodically at the end of the month or year I'm going to take the amortization schedule and properly adjust the loan amount to the amount on the amortization schedule and record the interest related to the period. That way the zero entries can be entered with just a simple bank feeds that you can memorize transactions and basically automate the process and then do the adjusting entry periodically possibly at the end of the year if you're just doing the reporting for tax purposes. So that could be the most easy automated thing to do. However, the second easiest thing to do is you're going to have to make these payments according to the amortization schedule. That's what we're going to imagine we are doing here. This would be the journal entry that you'd have to do for that first payment. But we already did this up top because we needed to pull half of that expense into an expense before the cutoff date before 228. So that would mean when this journal entry happens they would have to alter the journal entry. So they'd have to say, okay, well you already have recorded half of the interest last time so the journal entry they'd have to do something like this. They would have to be interest expense would have to be equal to the 145 minus the amount that we've recorded last time this amount and then we would have the loan payable or the interest payable was increased and last time so it would have to go back down with a debit and so that would be the interest as there'd be like this debit and then I'd have to record the loan which would would still be the same of this amount and then the cash would be the negative sum of that. So same kind of journal entry except I'd have to break out the interest expense and reduce the payable account to make up for that 145 83 but this is a tedious transaction you don't you don't want the bookkeeper to have to do that you don't want the bookkeeper to have to change things up. The other thing you could do is just say hey look just record it according to your normal transaction here and just leave that loan interest payable on the books and then we'll deal with it when it comes around again next time and we'll just make an adjusting entry so we don't have to reverse it in that case as well but we're going to reverse it here we're going to say hey look let's reverse it so this doesn't mess up the account we put it on the books and we're going to reverse it as of the first day of the of the next time period so that the accountant can just record this transaction the way they would normally do it. All right so if I go back on over here and we could say let's go into the transaction we did last time I'm going to go to the first tab here and I'm going to go into that journal entry by going to the accounting and open up the balance sheet report and I'm going to drill down on it so that we can see the actual journal entry that we put in place so I'm going to enter here and then I'm going to go into the interest the interest payable which is a liability down here where did I put it doneday there it is so there's the interest payable I'm going to drill down on it to the source document which is of course a journal entry type of form and so then we can go into the