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Here we are in our custom zero home page going into the company file we set up in a prior presentation get great guitars duplicating some tabs to put reports in like we do every time right click in the tab up top to duplicate it right click in the duplicate a tab to duplicate it back to the tab to the middle accounting drop down we want to open the balance sheet I'm opening the comparative balance sheet we made last time if you don't have that you can open the standard balance sheet tab into the right accounting drop down we want to open up the income statement again I'm opening a comparative one if you don't have that you can open the standard income statement tab into the left looking at the balance sheet we're now thinking about an adjusting entry period and adjusting entry as of the cutoff date for us that being the end of the second month 228 we're looking at one related to the liability account to start off with on our loan payables now remember there's a couple different things that you might have to deal with with regards to the loan payables one is the fact that you might have some accrued interest that you need to record interest that has been accumulated which you have not yet paid so that's a standard kind of a cruel entry that's what we'll we'll deal with this time another common issue you might have is breaking out the short-term and long-term portion of the loan which you might not need if you're sole proprietorship doing the adjusting entry for taxes because you might just need the income statement for tax reporting purposes but if you're doing external reporting and possibly for internal needs then you might have to break the short-term and long-term portion out we will deal with that in future presentations right now we want to just think about that accrued interest concept to do that let's go back on it we're gonna deal so we're gonna deal with this five thousand loan first and then we'll in a future presentation deal with the larger loan breaking out short-term and long-term portions of it so i'm going to go into our excel worksheet and i'm going to make another excel worksheet this is the amortization table for the long loan i'm going to create another just little amortization table for the short-term loan and just to understand the concept of why we might need an adjusting entry for the accrued interest now our entry will be fairly small in dollar amount and therefore possibly not necessary because of in materiality purposes it's not being a large dollar amount but the concept remains the same right so i'm going to hold down control and well actually now i'm just going to had another plus button over here and this is i'm going to call this the short loan or short loan a small loan short loan and then i'm going to i'm going to format the entire worksheet so i'm going to go up top into the triangle and right click on the worksheet this is my baseline formatting formatting the entire worksheet i like to work in currency and then negative numbers bracketed no dollar sign and i'll keep the decimals i'm going to say okay i'm going to make the worksheet a little bit larger by hitting the plus over here or you can hold down control and scroll up on the scroll wheel we're currently at 205 percent on the zoom in let's go a little larger i'm at i'm at 265 all right and then in a one i'm just going to put the terms of our loan so i'm going to imagine the terms of our loan it's a five thousand dollar loan and this by the way i'm going to make this whole thing triangle up top home tab thought group bolding the whole thing to hopefully make it a little easier to see this is what we would get from of course the loan documentation and possibly they would give us an amortization table with the loan but maybe they wouldn't and maybe we would have to just create our amortization table which we can do ourselves we can use online tools to help with the amortization table and or we can you know get a cpa firm to help us build an amortization table months we're going to say it's just a three month loan so it's a very short term loan i'm going to say the rate is very large because it's a short term loan and because i want to have a fairly significant dollar amount so i'm going to say 0.35 35 percent on the rate home tab number group percentifying it and then the payment that we're going to make three payments i'm going to do a payment calculation just to show you how that works to figure what the payment will be which is a useful tool if you're trying to make projections on what kind of loan you might be able to afford in the future for example i'm going to say negative PMT negative is possibly not the most proper way to start it but i think it's the easiest way to start it instead of an equals and then we have the rate the rate is going to be that 35 percent but that's going to be a yearly rate and we only have three months we're dealing with months so i'm going to take that and divide it by 12 that will give us the monthly rate comma the number of periods is going to be three that's in terms of months which matches the monthly rate now so that's good comma the present value is the 5000 that's the loan amount you could close it up or you don't really need to i can just hit enter and we come out to a payment that we're going to make of 1764 82 we're going to make three of them now you could try to say okay well what's the total interest that we're going to pay on this well the total payments are going to be simply going to make this a little wider three payments of this of this times three is uh five thousand two ninety four forty six so that means total interest interest would be equal to the total payments minus the five thousand however we would need to break that interest out between the three payments that we're going to be making so let's just make a little amortization table to see how this works and we can see it conceptually on a payment by payment basis so i'm going to make the c a little bit larger make a skinny c skinny c c went on a diet and then we're going to say this is going to in a diet actually worked what kind of diet did you do see i once you could get rich with that diet tell people how that happened and then interest this will be a loan i spelled that wrong interest interest that ease it's not my the keyboard wasn't working loan reduction it's not my fault loan balance nothing's ever my fault i just you just don't understand what the real problem here's the home tab alignment center and then font group and we're going to hit the bucket drop down it's going to be black and white so there is the loan terms let's put a border around this home tab font group just borderize it all right so then i'm going to put the dates i'm going to make this a date column now home tab numbers let's format this in the format of a date short date and then i'm going to say this is on two fifteen two three and then i can say three fifteen two three and i'm going to copy that down using my using my fill handle so there's the payments that we're going to make now we're going to say that the the loan happened on two fifteen so this is point zero and then we're going to say that we're going to make the first payment on three fifteen the middle of the second month so let's say the payment's going to be this amount the interest that we're going to calculate will be equal to five thousand times thirty five percent but that would be for the entire year this is just one month so i'm going to take that and divide the whole thing by two i don't need any brackets or anything because order of operations should be okay with multiplication division so that comes out to that that's not what i expected it uh to come out to so where i divided it by two not twelve double click this should be a twelve not a two all right then we're going to say the reduction to the loan is going to be this amount the payment minus the interest so in other words i'm going to pay this amount each time the interest is like the rent on the purchasing power of the money it's going to go away i'm not going to get a loan reduction for that and then that means that this amount is the amount that's actually going to reduce the loan balance here's the loan balance you can also call it loan principle loan reduction in principle but i always spell principle wrong like it's the principle of the school and then people make fun of me uh because my spelling didn't work right and then so i avoid that by saying loan reduction and then sometimes i spell loan wrong and people make fun of me uh but whatever so in any case uh let's make let's double click on this and make this an absolute reference saying f4 this is dollar sign b dollar sign and that means that when i copy it down it's not going to move this sale down so i'm going to copy that because the payment's going to be the same each time across the interest however if i double click on that that when i copy it down i want this cell to move which it will i don't want this cell to move therefore i need to make that absolute that cell b four b four what no that's b three b three so i'm going to f two on that one or f four i'm in there i select f four or you can put a dollar sign before the b and three you only need a mixed reference but an absolute one uh is easier to think about i can copy that one down and then this one is doing what we want because these two cells i want them both to move down when i copy it down so i'm just going to auto fill that one down this one is also going to do what we want because i want these two cells to move down notice the only time it really doesn't do what i want usually is if i have a cell that's coming from my data set over here on the left hand side okay so let's copy that down and then i should get to zero that's my indication that my amortization table is correct all right so if i then put some brackets around this thing uh there it is it's perfect it's perfect let's put a uh let's let's uh let's go to our c column home tab and format paint another eye column a skinny eye column over here and then we're going to say that uh that we're going to use this and say well now at this point in time notice that these loans are happening in the middle of the month so right here i'm going to i'm going to pay the next payment on uh march 15th but the cutoff date is 228th into february that means that there's been 15 days that happened in february uh before i make the payment in march so that means that basically half of the interest related to that should be incurred in february instead of march now so that would be this number divided by two now that's a pretty pretty small number so it might be in material uh and not really necessary to make an adjusting entry too but just remember that that's the concept that's the idea so you could have a loan structure that's not in in installment purposes not paid off each month or with the loan amount could be a lot larger in which case the kind of adjusting entry could be a lot larger but that's the principle behind it so what do we need to do well that interest then needs to be recorded before uh uh february needs to be pulled into february it's a timing difference a classic adjusting entry so the adjusting entry is going to be interest expense i'm going to make this a little bit larger debit and if i was to think of this in terms of debits and credits i'm going to say debit credit and we have to basically think in terms of debits and credits with adjusting entries there's really no way around it but with the smaller ones even if you don't really understand debits and credits you can still kind of reason around why it's a debit and a credit and kind of finagle it and see which debit or credit increases any particular account all right and the other side's gonna gonna go into i'm going to call it interest payable you might also call it a crude interest it's a liability either way i like using payable because i think that to me is a clearer indication that it's a liability it's a payable type of account so there it is now the so that will pull that 72 dollars of interest before the cutoff date so that we can record the expense as of the point in time that we're reporting our financial statements now notice that you might say but wait a second if i leave that there then it's going to kind of mess up my normal reporting by the bookkeeper because the bookkeeper is going to want to report according to this amortization schedule so they are usually going to report as of 315 they're going to want to say interest expense uh interest expense of this amount and then and then the loan reduction or let's just say loan account should go down by this and then the payment or cash let's say would be the negative sum of of that negative sum of that where i got my loan reduction backwards this should be a debit and not negative okay there we so and then this ties out to that so notice that this this entry will mess up the normal journal entry for for the account so you might then say well maybe i'll reverse that so this is one that we might do a reversing entry for possibly we don't really have to we could kind of leave it there and then do another adjusting entry but we'll do a reversing entry and we'll talk more about that in a future presentation for now though let's just record this amount so let's put some brackets around it we're going to do that with a standard just a journal entry so i'm going to go over here and go to the first tab and our journal entries we find them in zero by going to the accounting drop down reports and then we're going to say this is going to be a journal report and then within the journal report we have our ad journal that's what we want to do ad journal their narration i'm just going to say this is an adjusting entry you might put more than that but i want to be able to indicate that this is an adjusting entry specifically so that whoever's looking at this entry can see that it's not part of the normal day-to-day accounting process but rather the month end or year end adjusting entry process which they can tell by the fact that one it's a journal entry two i specified that it's an adjusting entry and three the date is always going to be at the end of the period so i'm going to go here and say that this is going to be the end of feb feb 28 feb 28 now zero has this really neat reversing thing here that says hey if it's a reversing entry we will do it for you we'll just reverse it uh as so you can set it to reverse it again i don't think that's in other software like quickbooks online and that could be a nice useful tool i'm going to go back in and do the reversing entry later just so you can see why you would do a reversing entry and win but we might touch on that just so we can see it we can see it in a future presentation so narrative good show journal on cash basis okay and then this is going to be the account is going to be a debit to interest expense and then it's for the amount of 72 92 72.92 and the credit adjusting entry is going to go to loan this which which loan was it the b of a i think let's double check it b of a loan the five thousand dollar one actually no i'm going to make it to another account i'm not going to go to the loan i'm going to make another account it's going to be a liability account so i gotta come up with a number that's why i'm in here let's make it uh let's make it two four three five so i'm going to go up top and say add type it's going to be a liability we'll type in the number before i forget it two four three five and then it's going to be a liability current liability name loan payable which you might also call a crude uh interest or not loan payable interest which you might also call a crude interest sorry about that my head's not working right now all right so there we have it so that looks good so let's go ahead and post it and check it out posting it and then checking it out balance sheet let's hit the update and we have then uh the the loan payable account down here is in the liability section loan payable now has the interest payable so there's the seventy two ninety two notice that you see it in here as a uh journal entry and that's good and also note that we recorded it as of the end of february and that's i just want to point that out because oftentimes people are like well yeah if you if you put it in there as of the end of february you're correct i guess as of that date but what about the day before february the income statement if you ran it before feb before the end of february up up to up to the 27th it would be wrong and you're right you you could say well why don't i why don't i try to make this adjustment so that it so that it records periodically every day correctly uh for you know why because that's tedious right it would be tedious to do that it would also make it harder to see that this is an adjusting entry and uh and so and we'd and it would be more confusing on the bookkeeping side and we'd have all these journal entries right so we want to make we want to say yeah we're just we're going to sacrifice the fact that it's not exactly correct for that 15 day period before the end of the year but for us reporting as of year end then our income statement is correct for for that whole time frame that's the idea okay so we're going to go back and then on the income statement if i update this one we reported then interest expense this is internet we should have had no i put it down here there it is interest expense uh so let's go into that and check it out so we've added another 72 92 so that looks good okay so that's the general idea that's a classic basically kind of adjusting entry because it has one balance sheet account and one income account although again it's kind of a small adjusting entry due to the type of loan that we had here let's open up another report let's open up the journal report so i'm going to duplicate a tab and if we want to see the adjusting entries we've put in place we can open up that journal report accounting drop-down reports and i can open up the journal report and check it out let's change the date up top hitting the date drop-down we're just going to make it for the day that we uh did the adjusting entry so at the end of january january i'm sorry the end of february february 28 to february 28 update so so now you can see that uh you can see our adjusting entry having a manual journal entry which notice that they kind of marked off and they designated as the manual journal entries those are the ones that are likely that we put in place so so now we can kind of run a report fairly easily easily and indicate which transactions are period end transactions because one they're entered as of february 28 although a lot of other transactions were entered as of february 28 but two they're going to be manual journal entries that we entered as of that date and three we're usually going to be indicating in the description that these are adjusting entries and you can further filter by hitting the drop-down up here and say you just want to say the posted manual journals only so it's not going to show us all the other all the other journals that were that were entered we have just the manual transactions now note that even that isn't perfect because i still have these other transactions you'll recall that i entered a payroll transaction that's a norm that's part of the normal journal entry process with a payroll here so that's why we still even with the manual journal entries need to be indicating that these are the adjusting entries we can also export these reports to excel and if we were to provide them to the bookkeeper to show you know we're not going to be able to do anything about it you know what we did as on the accounting or adjusting department we can then further filter this report we can also try to filter it up top further but i think the easiest way to filter it from here would be to export it to excel and just delete the items that are not the journal entries that are part of the adjusting entry process so we can provide the adjusting entries only if we need to whoever to whoever needs them all right let's also open a trial balance just to see where we stand at this point accounting drop-down reports and we're going to be opening up the trial balance the trustee trial balance the good old t to the b not tuberculosis trial balance and we're going to say let's do a custom date as of the cutoff date which is 228 feb 28 that's the cutoff date so uh of 2023 2023 why is it in 2022 k passo por favor all right so if your numbers tie out to these then that's great if not uh then maybe it's a timing issue if you were on before uh and you're off uh this time then the adjustments we made were of course too the new liability interest payable account we put in place as well as the interest uh expense account