 QuickBooks Online 2023, reversing entry, accrued interest. 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 opened the free QuickBooks Online sample company, if you want the to 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. We suggest using Incognito or another browser. You can open Incognito if using Google Chrome by selecting the three dots up top. Incognito window typing into the search engine, QuickBooks Online Test Drive. And we're going to be 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. If you want to change between the two, select the cog up top, change the view down below. We're going to duplicate some tabs to put reports in like we do every time. Right-click in the tab up top to duplicate it. We're going to go back to the tab to the middle. Then the reports on the left and then the balance sheet like in the middle left dish area. And then we're going to let's take a look by the way at the business view. If you're in the business view, the reports would be in the business overview and then the reports just so you know. Closing that back out. We're going to go to the tab to the right. Go to the reports on the left. And then we're going to go to the profit and loss on like the bottom middle left dish area. And then close up the hamburger in the top left. And then in the middle top right top left kind of section. We're going to be putting in the date range 010123 to 022823. Select the drop down. See it on a month by month. Side by side. Jan Feb tote. Tab it to the middle. Close up the booger. Change the range 010123 022823. Dropping down to go to the months and run it. There's our setup process that we do every time. We did an adjusting entry last time related to the interest accrued interest. We could see it down here reflected in our payable of interest payable. This being interest that has been consumed. Kind of like if you were to consume the rental of a office building, but you hadn't yet paid the rent. We have to incur. We have to on an accrual basis show. Hey, you owe that money because you consumed the office building space. And you have to show the interest payable here because you consumed the use of the money that you use to finance the equipment that you're using to generate revenue in the future. And then on the right hand side, the other side of the report, it was included in the interest expense. So that's great because our financial statements are properly reported now as close as possible to proper accrual recording as of the cutoff date in our case February 28, which notice you might think of it more on a year end cutoff date oftentimes, but we're doing the end of February. You could do it a month by month cutoff date depends on what you're doing, but that's our cutoff date. So the financial statements were correct so we could do our reporting as of that point in time. But it kind of messes up the bookkeeper now because they were going to record an interest like on the second month paint when they make the payment here. They were just going to record it according to the amortization schedule. And now we've got this weird thing happening. So let's pull this down here and just show you what I mean by this, right? Because now they're going to be like, okay, I'm going to record the interest, but now I've got this interest payable here. What do I have to do with that? So you would think at the next time of payment if I don't reverse that that I have to take that into account because normally what I was just going to do the bookkeeper might say or the accountant might say when they're when they're entering. I usually I would say cash would have to go down and this would be my journal entry. I would say I'm going to put in debit to credit. It would be a credit in which I'm going to make a negative number. And what's what I normally do and then interest expense would have to be debited according to my schedule here of the 145 83 and then the loan payable account would go down. By by this and that would put me in balance these two adding up to that. So in other words, I was planning if I'm the bookkeeper I'm talking about from the accounting department side of things. I was planning on entering like a check form or an expense form. I'm not actually going to record this. I'm just saying that that when I paid this off, one of these accounts was going to go to interest expense. According to my amortization schedule of 145 83 145.83 and the other was going to go into that loan payable account loan payable. But for like the business loan, which I think was the B of a one that we're on. And that was going to be for the one six one eight nine eight one six one eight point. What did I say point nine nine point nine nine. And that's the jet. That's the transaction. I was I was thinking to do here so that it would have the total of the one seven six four eighty two lowering the cash account. And then and then like interest expense would be this one 145 and then the loan payable would be going down and then I would match out this three three eight one right. That's what would happen. But I can't do that because if I take into consideration you've got this loan payable on the books you would think now I'd have to do something like cash would still go down by this amount. But then you've got this this interest payable interest payable which is a liability payable on the books at seventy two ninety two. So I'd have to take that off the books which is a debit because it's a liability account. I won't and then the interest expense then would have to be for this one forty five one forty five eighty three minus that I think right. And then the loan the loan payable would still have to be this something like that so this still ties out right. And so I so if I was to properly record the next transaction I'd have to decrease the loan payable breaking out the decrease of the loan payable. I go back on over to here and said do you want to leave. I'm going to say without saving I do I do I'd have to I'd have to make that go back down to zero which isn't hitting the income statement in the current period which would be March in this case. And then and then I'd have to record the side the interest expense in March. This is complex I don't want to have I don't want the accountant to have to have to deal with that. We could we could tell them to just keep doing this or possibly just if they're on a cash based system just record everything to the cash amount to the loan payable account and we'll just do periodic adjustments. And we'll just fix it at the end of of each period or something like that. But we're going to say look we're going to reverse it so we don't mess up the accountant as in all of our reversing entries are going to happen as of the first day of the next period. So I'm not going to make you might say well why don't I make the reversing entry as of three fifteen because then when I reverse it. It'll net out on that exact day and we'll have 15 days that are kind of more accurate than they otherwise would be. But our goal isn't really to make things accurate during the 15 middle of the month period. They're the goal is to make things accurate as of the end of the period and make the adjusting and reversing entry as easy as possible. I don't want to have to hunt for when the adjusting and reversing entries were put in place. I want to know where they are very clearly. Therefore we'll do all of the reversing entries the day after the cutoff. So all I'm going to do is reverse exactly what we did with the adjusting entries. So if I go back on over keep on messing up how I go back and forth. If I go back on over if I look at this adjusting entry you can even take a screenshot of it or something. I'm just going to and then just reverse it. So I'm just going to go into that. There it is. I credited interest payable debited interest expense. I'm going to do the exact opposite now. All right. So let's close it back out. I'm going to do it with the registers again. You could do it with a journal entry form. We're going to make a journal entry form but we'll do it with the registers. So I'm going to go back to the first tab into the accounting down below. We're in the chart of the accounts. And if you were in the bookkeeping or the business view by the way the accounts the chart of accounts is located under bookkeeping. And then the chart of accounts. And then I can't go to the interest expense account because it doesn't have a register. I've got to go to that interest payable that I set up with which is an other current liability account. There it is. There it is. Register. And then I'm just going to do the exact opposite of what I did here. So no problem. All right. Now although I'm going to hit the dropdown and say I want to do an adjusting entry or a journal entry and all of the reversing entries are going to be as of the first day after the cutoff the cutoff is 228. So we're going to do this the first day of the next period 030123 March 1st. And then the memo I'm going to put reversing entry. I might want to put more than that what the reversing entry is doing and so on. But at the very least I want to say it's a reversing entry to indicate to ourselves or the accounting department. Hey look this is a reversing entry. How can you tell because the date is 3 1 because it's a journal entry and not using any other kind of form because we put in the memo as well reversing entry. And then we're going to say that this is going to be a decrease of the 72.92. The other side is going to go and this is funny. Interest expense. Why is it funny because now we're reducing an expense account which you don't normally do expense accounts only go up usually and until you close them out in the closing process. So we'll say why this is why we're doing this. Let's save it and close it. And that brings this back down to zero. So if I go back to my balance sheet let's extend the dates up here to go to 033123 run it. So we got the side by side for three months which is super cool that we can do that. And then if I scroll down now we've got everything correct as of the cutoff date. This is where we want to report everything. And then we reversed it as of March right as of the first of March. So if I go into it and we look at the look at the detail if I go into this I'm going to change the range back to 010123 running it. And then so now I made it correct as of the as of the cutoff and then reversed it the day after the cutoff. And so now it's back on down to zero. Why did you do that? Because it's a timing difference and we wanted to make it right as of the cutoff isn't 72 a small dollar amount. Does it matter? Yes, it's probably in material but you can imagine a situation where it would be material and relevant to decision making and the concept would remain the same. Let's go to the tab to the right and then do this again. Let's extend this out to 03013123. Run it. So same concept happened down here. We added it to interest and then we've got this negative amount here. So notice in the year to date because we did it in the month it didn't make interest negative. But for the month of March I have a negative amount in interest meaning interest went down. That doesn't make sense typically. Why would we do that? Let's go with let's go into it and say okay if I go into this and let's change this from 010123. So now we've got we've got we've made it right as of 228 the cutoff date and then we reversed it. But this reversal means that when I run a profit and loss just for March I end up with a negative expense which doesn't look right. But it will be right when the bookkeeper records their transaction which we saw will be this according to the normal amortization schedule which will record this amount to interest expense. And the amount that properly should be recorded to interest expense and the current timeframe is this amount half of that. So this will net out against against this and it'll be correct. So that's that's the point and it'll be not only correct it'll be easy for the bookkeeper because the accounting department can do what they do. They don't have to mess with my reversing entry. It'll still be correct as of the date that they make that transaction which in this case looks like it'll be on 315. Then you might ask why then don't I enter this as of 315 so that it'll be more correct for the 15 days of March. And it'll match up to the date that they enter the transaction and match up at that point because I don't want my reversing entries scattered across the month. Because I'm sacrificing the fact that the financial statements will not be precisely correct in the middle of the month in order to make things easy between me and the accounting department. They're just in the accounting department and and and so that they can automate their systems right. So that's the idea. So we're we're going to sacrifice the idea that it's not going to be perfect for the entire timeframe. It's going to be perfect periodically or as close to perfect as we can be so that we can make the accounting system as easy as possible. And then just make the adjustments that are necessary in order to make the accounting system go as easy and automated as possible. Okay, enough of that. So now that's it then. Let's take a look at our reports. So I'm going to go to the tab to the right and duplicate it. And then let's look at our journal entry reports because now we can look at the adjusting and reversing entries. I go down to my reports on the left. I'm going to type in journal report journal journal and then close the boogie. So then let's let's say that I want to do this for the cutoff date 0 228 23 0 228 23 and then I'm going to filter it by journal entries. Filtering customized filter by transaction type journal run it. And so there we have it. There's our adjusting entry. These other two, we could still filter those out by exporting to Excel and get rid of them. But there's our adjusting entry. Let's look at the reversing entry, which will reverse that as of the first day of the next time frame the next period 3 1. And there's the reversing entry. Boom. Shaka locker. Okay. I'm going to stop saying that. Why does that? All right. So then I can go to my trial balance and let's see where we stand at this point. Trial balance. I'm going to run it for three months. Let's do this time 0 1 0 1 2 3 to 0 3 31 2 3. The cutoff date is 228. But now we've got those reversing entries and let's see it on a month by month, a side by side. So we can see what's happening for all the periods impacted here, people. So there we have it. Jan, Feb, March. If your numbers tie out to what we've got, then we're on the page of the same page. We're reading the same story and it's an excellent one. It's a page turner. And if not, then try to expand the date range. We'll be doing another journal report at the end of entering the adjusting entries to further drill down on any differences.