 QuickBooks Online 2022 adjusting entry accrued interest. Get ready because it's go time with QuickBooks Online 2022. Here we are in our Get Great Guitars practice file. We set up with a 30-day free trial. Holding down control, scrolling up a bit to get to the 125% currently in the home page. Otherwise, knowing it's the Get Things Done page. To the Accounting View, it's something you can do. By going to the cog up top, switch to Accounting View down below. We will be toggling back and forth between the two views either by going here or jumping over to the sample company file currently in the Accounting View. Back to the Get Great Guitars. Opening up a few tabs to put reports in. Right-clicking on the tab up top to do so. Duplicating that tab. Back to the tab to the left. Right-clicking again. Duplicating again. Back to the tab to the left. Right-clicking again and duplicating again. As that is thinking, let's jump on over to the Accounting View in the sample company to note where the reports are located which happens to be on the left-hand side in the Accounting View. Back on over to the Business View. Second tab. It's still thinking, give it a little time. Give it time. Don't rush it. Let it do its thing. And then we're going to go into the Business Overview. The hamburger. Open up the Big Balance Sheet. The Balance Sheet. Back to the Basics with the Balance Sheet. We're going to say this is from 0101-222-0228-222. And run that one. And then we're going to tab to the right. Tab to the right. Business Overview again. Reports. Standard Reports. Closing the hamburger this time. You might have guessed and you'd probably be right. If you did guess, you would be right. If you did guess profit and loss. That's the one. 0101-222-0228-222. Let's change it to Months. I want to break this out by Month. And then run it. The Months here. Our cutoff will be the end of February. Going to the tab to the right. I also want to open up the Trial Balance. Because the Trial Balance is traditionally what we use for the adjusting process. So let's go to the Business Overview again. Reports. And close up the hamburger. And then type in Trial Balance to find it. And to open it. It's right there. Let's open it up and check it out. Ranging the changing up top from 0101-222-0228-222. Run it. There we have it. Okay. We're going to go back to the first tab on the balance sheet. Remember this is the adjusting entry process. We're doing the adjusting entries for the cutoff date as of the end of February. So the cutoff date means that we want to make the financial statements correct in our case on an accrual basis. As of February 28th in practice, you might actually do the adjusting entries every month. If you have external reporting needs, for example, if you're reporting them to investors or to, for example, possibly to a client, but also possibly to like a bank or something like that. If you're looking for a loan or something, or if you're a smaller business, you might do it periodically on a year-end type of basis. But the concept of the cutoff date, we want to get the financial statements correct as of that date is the thing we're focused on here. Now we're going to scroll down. We're looking into the loan payables. And we've got the loan payables down below. We're focusing in specifically on the smaller loan this time, the B of A type of loan, where we are going to imagine that we have some accrued interest. So normally or oftentimes when you're looking at loans, you've got the installment type of loan, which is the common type of loan we're most familiar with oftentimes, which means we pay equal installments of the loan, typically on a monthly basis. You could set up loans in a variety of different ways in a business setting, however, as well. So you might just take out a loan and say you're going to pay back the interest and principal in the future. You might pay back just the interest and then have a balloon payment of the principal that you're going to pay back in the future, for example. So there's different kind of formats that you can have for a loan. But we're going to set up an installment loan for this one. There's also some other issues we'll talk about with the loan. Later we'll talk about breaking up the short-term and the long-term portion and so on. But right now we're just focused on the interest that could have accrued, which have not yet been paid. So in other words, when we pay the loan, you'll recall that we paid the loan on this one, for example, that usually we got three accounts that are impacted. The cash is going down. We've got the loan that's going to go down. And the other side is going to go to the income statement. Income statement in the form of interest that we put down here, interest expense that will be also impacted. Now, it's possible, however, to have interest that has accrued that you have not yet paid. So for example, if you basically took out a loan and you owed interest but you had not yet paid it, you would have incurred the expense from an accrual standpoint. It would be a similar type of thing if, for example, you were to rent an office building and you have not yet paid the rent but you've been using the office building, then you should record the expense at the point in time. You use the office building typically from an accrual basis standpoint. So to think about that concept and note, this will be a fairly small adjusting entry in the scenario that we have here, which might be immaterial. In other words, not going to be really impactful for decision-making purposes, but you can imagine a situation where it could be a fairly large difference, which would be material and therefore obviously merit and adjusting entry, especially if you have different kind of loan formats that were different than an installment loan. So I'm going to do a quick little worksheet in Excel. I know this is not an Excel course but I think actually filling out the worksheet will help us to understand the accrual entry that we'll be putting in place. I'm going to select the entire triangle up top, right-click and format this cells. Now, if you don't want to go through this whole formatting of Excel thing, you can kind of zoom forward in the presentation to where we have the tables and go from there. But I'm going to say this is going to be currency and I'm going to say bracketed numbers and no dollar sign. So we'll keep it at that. I'm going to save it and close it. Hold down Control, scroll up a bit. So we're zooming in down here to 16175 I'm at. And then I'm going to say that this is going to be... I'm going to put my data here. So this will be my data that I'll use to make my table. So I've got a loan. A loan and the amount is going to be for 5,000. I'm just going to say the months, I'm going to be three months. It's just a three month loan. That's it. I'm going to select the entire worksheet again and try to make the whole thing emboldened so that you can see it a little bit better. That's what I feel. I'm going to make this sell a little bit wider and then rate. I'm going to make the rate very high so that we can have something that we could... that will be a little bit more relevant. So 0.35 I'm going to then make that a percent by going to the number group and percentifying it. That would be the annual rate that we need to break down to a monthly rate for the three months. And then we're going to have the payments. Payments which I'm going to calculate with the payment function here. We're going to say this will be equal to the PMT brackets and then we'll pick up the rate. I'm just following this little thing down below. I'm going to pick up the rate. The tricky thing is that's the yearly rate and I want the monthly rate because we have three months. We're in terms of months so I'm going to take that and divide it by 12, the number of periods is going to be three months, not three years, three months and then comma and the present value is the 5,000. I can close it up there and end it off. There it is. It puts a negative number. I don't want the negative number. I want a positive number. So I'm going to double click on it again. I like to, when possible, to just put a negative in front of the whole thing. But it probably won't be more proper to put it within the argument. But I'm going to put the negative upfront if I can because that's easier for me to do. There it is. So there's going to be our payments. Let's make our little amortization schedule for the three month time frame. And to do that, I'm going to put my headers up top. I'm going to call this the periods, periods or months. This is going to be the payments and then we've got the interest and then we've got the loan reduction, reduction, reduction and then we've got the loan balance and then I'm going to select those items and make it a header, my header formatting. Typically I'll select those, go to the font area and make this black and the text white and then center it. Something like that. And then I'm going to say the loan. I'm going to imagine the loan started on two 15. So it started at the middle of the month. I want to make these months. I want to make these sales into months. So to do that, I'm going to do some tricky formatting. I'm going to right click on it and format these sales. I don't want the year in it. I just want the months without the year. So I could go down to the date down here and I have one right there. But sometimes they don't have that one. I think they're adding it as a default now. But if they don't have it, you can choose something like this one. I don't really want the year. That's my issue. So if I select that one and then I go down to custom I can then here's the format of it. I could just say I don't want I can like delete it down to just the day. And so there it is and say OK. So now we've got let's do that again. It's 115. That's what I want. And then then we got 315 315 315 and then I should be able to auto fill selecting those two put my cursor on auto fill and drag it down to three. What about now this should be 215. Hold on a second. 215 315 and then auto fill then auto fill. And so there we have it to 515. Now the payment I'm going to say the loan balance is going to be equal to the 5000 up top. And then we're going to have the payments which will be and I'm going to say that's going to be then the payments will be equal to this one seven six four tab. Interest is going to be 5000. I'm going to take that and then multiply at times the rate that would be for a year though. So I'm going to divide it by 12 and that would be the monthly amount. So if the payment was equal to this and the interest which is kind of like the rent on the purchasing power of the money was that subtracting the two would be the loan reduction of the one six one eight ninety nine. So this will be equal to the 5000 minus the one six one eight ninety nine. Let's do it again just so we can see the changes here. This is going to be equal to the payment. The interest is going to be equal to the new loan balance times the rate 0.35 divided by 12 because that's the yearly rate we want the monthly rate and that means that if we take the payment minus the interest which is substantially less because it's only a three month loan then we get that I'm going to take the difference this minus that is going to give us the one seven one four one more time this equals this number this is going to be equal to the loan times the rate and then divided by 12 and then we'll subtract this out this minus this and then we have the final item is going to be down to zero now just to just to show you we could do that of course with dragging it down so for example I could delete this whole thing and do it one more time by auto filling to auto fill anything that I'm pulling that's coming from the data set on the left-hand side and it's not in the current table we're working on we need to make absolute so I'm going to do that by selecting F4 on the keyboard F4 that puts a dollar sign before the B and the 6 which tells Excel don't move that cell as I copy it down you only need a mixed reference but an absolute one works we're going to go into the interest I'm going to do the same thing this one's in B5 so within B5 I'm going to select F4 dollar sign before the B and the 5 everything else is inside my data table or my table I'm working in and therefore I want it to move down as I copy it down and this one everything is inside the thing I'm working in this one everything is inside so I don't need to do any adjusting entries if I then select those four I can auto fill it down we get the same result now here I'm going to delete these two rows up top I've ordered it on row 3 for some strange reason deleting that now we're going to be right here the cutoff date you'll recall is the middle of February or February the end of February and that means there's 15 days here where we incurred that interest but we're not going to pay it until March so that's going to be the adjusting entry that we want to do it's kind of like rent we used the place but we didn't record the expense because we're not going to pay it until the next month so the adjusting entry is going to be half of that the 145.83 divided by 2 the 72.92 now I know again that amounts probably not material most likely so meaning it's probably not going to have an impact on the decision making processes of us entering it but you can see the concept of this kind of accrual adjustment and if we had a loan that was set up that the loan was larger and for example we didn't pay it back on instalments but possibly we paid it back in some other format like we paid the entire balance back at a later point in time you can see the loan amount could accrue and be a relevant adjusting entry so we're doing this just for the conceptual purposes even though it's fairly small adjusting entry what the adjusting entry is going to be doing then is going to be increasing the payable that we owe at this point in time as of the cutoff date and the expense that we have incurred but which we have not yet paid so let's go back on over to do that normally you do that with a journal entry so I'm going to go back to the first tab and if we wanted to enter a journal entry we could hit the plus button here and go right to the journal and if you're comfortable with journals that's what I would do we will be entering a journal entry and we'll take a look at the journal entry if two accounts impacted it might be easier in some cases to use the register so that's what we'll do here but note that all the adjusting entries you want to have an actual journal entry form that's going to be used because that'll help you to distinguish that this is an adjusting entry not part of the normal accounting process in other words the forms are typically kind of an indication that these are part of the normal of accounting process we're going to deviate from the normal forms to the last resort form which is the journal entry which will help us to distinguish the adjusting entries from those that are normal transactions within the accounting process so let's go back to the first tab go to the bookkeeping area we're going to go into the chart of accounts if you were in the accounting view by the way that would be in the accounting tab and then the chart of accounts up top we're then going to go and close up the hamburger now I would like to use the appropriate register in order to record the journal entry so there's two accounts that are going to be impacted one I'm going to create an account which is going to be a payable account like interest payable or accrued interest I like to use the term payable because that to me indicates a liability more clearly although it's a little less kind of professional sounding possibly so that's up to you what you would want to use between the two that's what I'll be using here the other will be an expense account I'm going to use the expense account to go into the register because we are in that's an income account it doesn't have any registers so I'm going to create the new account which is going to be the payable account and then I'm going to use the register in it now when I create a new account I don't like doing that in the accounting view I mean sorry in the business view because that's the one thing or that's my biggest thing that I am not a fan of I'm going to switch over to the accounting view to do so I'm going to right click on the tab up top and duplicate it so we got the two tabs and I'll put the second tab in the accounting view so we can toggle back and forth hopefully between the two views toggling back and forth between the two tabs so let's go to the cog up top I'm going to switch to the accounting view so that they don't drive me crazy as I try to enter a new account I don't want to go to crazy I'm getting out of the car I'm getting out of the car I'm getting out of the car before they take me totally to the crazy to crazy I've got my own car I'll go where I want to go so I'm going to add a new account here we're going to add a new account this is going to be an other current liability type of account other current liability and we'll call it a loan payable so it's a loan payable type detail account the same I'm going to call this well maybe I should just call it another current liability here it doesn't really matter either way too much but I'm going to call it other current liability down here as well and then I'm going to call it interest payable which again you could call say accrued interest if you so choose accrued interest which has accrued upwards and has not yet been paid so that's what I'll use here let's save it and close it save it and close it and then go down to that interest payable account that we just set up it's in the liability section the current liabilities that is there it is now let's go into the register so now we're in the interest payable register I'm going to set the drop down I'm going to use a journal entry type of form as of the cutoff date 022822 adjusting entries are as of the cutoff date we're not trying to get everything perfect in the middle of the month we're trying to get everything correct as of the date that we're going to process the financial statements which is the end of the month and so that's going to be the thing here I'm going to put ADJ entry here you might want to put more information in the memo but that at least is what you want because you want to be able to indicate to yourself as well as to the accounting department that this is indeed an adjusting entry that was done as part of the adjusting process this is a liability account it's going to go up I believe it's an increase this is kind of it's a little bit confusing with increases and decreases it's actually more clear with debits and credits but the bad thing the liability is going up I would think so we're going to say I know it is but sometimes their increase and decrease can be a little okay so the other side is going to go to interest interest expense I'm going to type in interest not payable interest expense right there other expenses that's the one notice it gives me the other expenses here which I don't think the business view does which I don't like I'll say it right now I don't like that they should fix that on the business view if you want the business view to survive I don't know maybe people like it but I'm not a fan of it I feel like you in any case here we go let's save it and close it stop with the critiquing into it's not listening to you here let's go back to the balance sheet back to the balance sheet I like everyone else I just deal with the changes that come forward I'm hopeful and have faith that into it will come across the good format after they do all their testing so then we're going to go down to the liability area down here and we're going to say somewhere oh I got to make it a freshen up the report run it I'm working with stale numbers here it's like eating stale bread we're going to go down there's the interest table liability 7292 if I drill down on it I can see that it's a journal entry type of form here if I go into the journal entry form then I can see the journal entry it gives it to me not in the register but in the journal entry I'm going to copy and paste the description down below here too it's on both sides and both of the of the GL accounts save it and close it so it looks like it's doing exactly what we the thing the thing happened exactly the way we planned it to happen and now let's go to the income statement and at the bottom down here at the bottom we've got then the interest expense going into the interest expense we put it in there here so that adds up to the total maybe saying hey shouldn't you have done that for the end of january too possibly but maybe we didn't need the financial statements at the end of the january maybe the bank wants the financial statements as of the end of february or something like that right we're doing the adjusting entries to make the financial statements correct as of the cutoff date whenever we need it as of the cutoff date which might be monthly might be quarterly might only be yearly in this case it's at the end of february so let's go into the detail and check it out there's our adjusting entry once again once again there it is now of course it's a fairly small adjusting entry but the concept is what we're thinking about here because you can imagine a situation where an adjusting entry like that could be relevant meaning relevant for decision making purposes and therefore worthwhile to be entering into the system here okay let's go let's make another let's make one more report right click on the tab up top and duplicate it and I'm going to take a look at a journal report so we can see these journal entries as we construct them so I'm going to go to the I'm going to go to the reports now I'm in the accounting view I'm going to go to the reports on the left hand side and then close up the handbook and I'm going to type in the journal the journal report j-o-u-r-n-o report and then so there's our journal report let's do this as of 022822 just one day 022822 just that one day and there it is so now we can see all this stuff in journal entry format but it still shows all the other kind of transactions so I'm going to sort it just to the journal entries now I want to go customize it up top and I want to say filter this thing poor favoor account type I just want to see the journal entries that's it that's all I want take all the other stuff away so there we have it and there's our journal entry we still have this one for payroll we had up top which was our adjusting entry that we had to do but that one trims it down so you could really drill down on the journal entries that's part of the point of us entering all of them as of the end of the time period in this case February 28 because it makes it easy for us to locate them both by date and also because they're going to be using a journal entry as opposed to a form and because we're going to be putting the adjusting entry thing there so that if the adjusted entries were done by someone different than the accounting department and the accounting department for example had questions or we had questions even if it was the same person doing both entries then I could say oh that's an adjusting entry thing and I can then ask why the adjusting entry is doing what it is doing and so on and we could work between the two methods here so that's going to be it now note also that if I go back to the balance sheet I've got this now $72.92 on the balance sheet which is correct for financial reporting purposes but it could confuse things from the accounting side of things so in the following presentation we might want to do a reversing entry so that we can go back to the prior point for the bookkeeping purposes so when the bookkeeping just their normal data entry they don't have to worry about this $72.92 here so we'll talk about that in a future presentation or the next presentation for now let's take a look at our trial balance which is where we stand at this point in time I'm going to go ahead and if your numbers tie out to this great if not then try doing a date range change and we'll take a look at the transaction or the journal report at the end of the period to further diagnose any differences