 QuickBooks Desktop 2023. Adjusting entry accrued interest. Let's do it within two weeks. QuickBooks Desktop 2023. 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 then 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. Here we are in QuickBooks Desktop. Get great guitars practice file. We started up in a prior presentation going through the set of process we do every time maximize the homepage to the gray area in the view drop-down we got the hide icon bar open windows list open windows open on the left reports drop-down company and financial let's open up that P&L for the first two months of data input we've done 010123 to 022823 customize it font and the number changing the font will bring it up to 14 oh yeah okay then we're gonna go to the reports drop-down again company and financial this time the balance sheet customize it 010123 to 022823 and font in numbering changing 14 oh yeah okay that's the set of process that we do every time we're doing adjusting entries now as of the cutoff date that being 0228 the end of February for us we're going to be focusing in on the law the liability first off that being down here the small liability of the five thousand so just a quick recap on the loans down below you will recall that when we put the loans on the books we could have put them into one loan account right here but we said hey it's nice if I can have one loan account for each loan from a bookkeeping standpoint so we therefore set up a parent account and then these two loans underneath it these two loans then can tie out to their their related amortization schedules which I've put together over here so now we can as we enter the payments we can tie them out to our loan schedules also just realize the other thing related to the loans is that you might have a short-term loan and a long-term portion to the loan which we will deal with later in a future presentation looking at this loan which extends beyond one year so if you're gonna properly report that you would have to show a short-term portion and a long-term portion and what you don't typically want to do is try to record the proper short-term and long-term portion each time you enter a new loan payment because that's gonna be too tedious part of the point of the adjusting entries is that we're gonna try to make the data input as easy as possible and then make periodic adjustments so I can adjust these items to the amortization tables at the end of the period so one of the simplest way we can do that note that if you're a bookkeeping bookkeeper and you're trying to automate the whole thing and then you want to do periodic adjustments at the end of the year for example you might try to set it up so that you set everything up with the bank feeds instead of tying out to the amortization table with each loan payment even and then at the end of the year you provide your tax preparer or do yourself the amortization table saying hey look I need you to properly break out the loan balance I need you to adjust for the interest on the year using the amortization table on a periodic method that's another concept that they can be used to make this adjusting process work quite well and try to automate things as easily as possible we're first going to be looking at the short-term loan here and considering a situation where interest has accrued but not has not yet been paid so we're gonna have not a whole lot like it's a small adjusting entry but the concept will apply so we'll try to adjust the or concentrate on that concept so that 5,000 went on the books here with a journal entry on 227 we've got the related amortization table we're going to say here and then the first payment we're gonna imagine is going to be made in the following month after the cutoff in March and so let's imagine that this interest represents a month of interest and that means that half of it happened actually we incurred it before the cutoff in February and half of it should be applied to March so in other words even though we're not gonna pay the 1,764.82 first payment until March some of it the rent on it should apply to before the cutoff so when we make the payment in other words we're gonna pay 1,764.82 we're gonna have to then be charged interest of 145.83 which is kind of the rent on the $5,000 that we had borrowed and then the loan reduction is just gonna be the 1,618.99 and the loan will come down to the 3,381.01 based on the loan information over here which I made the rate fairly high so that we have a significant amount of interest for that first payment so we're gonna say okay well that means that half of that interest should be technically on an accrual basis are incurred in the current month so I've need to pull that $7,292 into the current month now again you might say well that's pretty small it's immaterial possibly in some cases but you can imagine loan structures where the accrued interest can be you know quite material so if we incurred it it would be similar to a situation where say we have a deal with our landlord on our office building that we're gonna pay them rent like a year later even though we've been using the office building all year from an accrual standpoint we would still have to record the expense in the in the timeframe that we incurred it when we use the building in this case we used the $5,000 in part in this month and therefore we got to bring part of this back to the current month that's the concept alright so we're gonna go back on over and say okay how can we do that adjusting entry also just realized that this might not be something you would need to do for a small business on a month-by-month basis maybe it's something you would need to do more like at the end of the year when you're reporting for taxes or your year-end reporting on necessities but we're gonna be working with a cutoff of February 28 because we have two months of data input in the system now this will typically be a journal entry notice that if we go through our thought process on how I'm gonna be recording things if I go to the home page none of these forms are designed to do adjusting entries adjusting entries by their nature are typically a journal entry also most of the time we don't have any adjusting entries with relation to cash therefore we're not going to use the deposit form or the check form and so we're gonna have to use journal entries which you could do by going to the company drop-down make a journal entry or you could go to the register if there's only two accounts impacted the register works quite well if there's more than two accounts the journal entries are actually are better to use because debits and credits are actually more precise or easy to think about in terms of when they go up or down then the then a register but let's use the register when we can we'll also look at the journal entry if I go into the chart of accounts here now in this case we've got two accounts that are going to be impacted what is going to be interest expense the other is going to be the balance sheet account we could only have the register on a balance sheet account so I can't use interest expense register the other side I'm not going to put it into the loan directly here but instead I'm going to record an account called interest payable or you might call it accrued interest so I'm going to go account drop-down or rise up I'm going to make a new account and I'm going to say this is going to be an other current liability account other current liability account there it is continue and I'm going to say it's going to be interest payable now accrued interest might be a more of a professional like term but I think a payable to me more clearly states that it's a liability account right it's a payable so I'm going to set it up as that so there it is and I'm going to say okay interest payable and then I'm going to double click on the interest payable it being a balance sheet account therefore having a register I'm going to put all of my adjusting entries as of the end of the month which is 022823 in this case and I'm going to say that this is going to increase by that 7292 so I'm going to say okay we've got to increase it by 7292 of a liability the other side is going to go to interest and so we've got the interest don't get it mixed up with the internet because I said that it's pretty close but it's interest we put it into other expenses so I'll keep it there I want to put in the memo that it's an adjusting entry when I try to look up these adjusting entries because they will be important noting that you might have like a CPA firm or an accountant do the adjusting entries that's separate from the bookkeeper you want to be able to identify it's an adjusting entry which is typically identify a bull by one it being a journal entry instead of a form two it's as of the cutoff date and three you'd like a memo telling people this is an adjusting entry I'm going to say enter now you could double click on this and you'll get to the journal entry so if you like journal entries here's the journal entry you can enter it this way I'm going to copy the memo and put that on those sides here so the payable goes up because it's a live it's a credit balance account it goes up with a credit interest expense debit balance account goes up with a debit so we'll save it and close it saving and closing and then I'm going to close this back out and I'm going to go back to the balance sheet and now in the liabilities we've got this other current liabilities down here for the interest interest payable and we've got our loan on the books if I go to my profit and loss the P and the L we've got our interest expense double clicking on it that's the internet see I get those mixed up again interest expenses down here other and there's the $72.92 we could see it was put in place with a journal entry so let's close that back out so that that means that we've got this technically correct we've got the income reported in the proper period because we used the money in that period we've got the liability properly reported as of the cutoff date but if I leave it like that notice this will mess up the next journal entry because if I go over here and say what's what's the bookkeeper going to record when this payment happens well there's two things they could do you could you could just say I'm just gonna make the payment calculation here and record it just to the loan and and then rely on us on the adjusting entry side to make the adjustments necessary that's one method you could use or they might try to use the amortization table here to record the payment in which case it would look something like this they would say okay I'm gonna record my payment that means I'm just gonna use generic accounts that means that we're gonna have let's say cash go down I'll put cash on top of the liability cash would go down by this amount with a credit that's why I put it over there and then we would have the the loan or let's say interest interest expense interest expense which I misspelled would be equal to the 145 83 interest expense and then we would have the loan reduction loan amount would have to go down by this amount and that would make it in balance but I can't if I leave it the way it is then you would think they would have to account for the fact that we have this 72 92 on the interest payable so if I don't fix it then that then they're gonna go oh man there's something I'd have to do something funny when I do that the book keep when I do the bookkeeping I have to say well cash is still gonna go down by this this amount but then I've got this this interest interest payable payable the interest payable that's gotta gotta go back down to zero so that would that's gonna be on the books as a liability that's gonna be a debit of the interest payable and then I'm gonna have the loan decrease which is gonna be the same of this so that means interest expense has got to be that and if I did that then I would record I'd have to do this entry to record the proper amount of interest in the current period and bring the interest payable back down to zero but this is confusing right I don't want it's already confusing enough to do this for the bookkeeper and so so what I want to do is not not mess up the accountant so that if I give this to the to the accounting department and the accounting department is separate from the adjusting entry department they often will get irritated with the adjusting entry department because they're gonna say what am I gonna do with that you know now it's like what is the next thing what do you want me to do how are we working together here well that what we could do is what we'll do in a future presentation is reverse it as of the first day of the next time period because this is just a timing difference and we're gonna try to look at those entries which are timing differences versus permanent differences if it's a permanent difference we keep it if it's just a timing difference we could reverse it and say hey look accounting department you are doing great we don't want to mess your thing up we just made that adjustment to make it correct as of the cutoff date we're gonna reverse it back to where it was the day after the cutoff date so that you should be able to continue your process normally and so we'll see more about that in a future presentation for now let's take a look at the trial balance and take a look at the trustee TB from 010123 to 022823 and then I'll customize it up top fonts and numbers changing the font let's bring it up to 16 okay yes and okay this is where we stand at this point in time if everything ties out great if not see if it's a date range issue and we'll continue on next time