 In this presentation, we will enter adjusting entries into our not-for-profit organization. Let's get into it with Intuitz. QuickBooks Online. Here we are in our not-for-profit company or organization dashboard. We're going to go on down to Excel first to consider what our objective will be. We're going to be entering, in essence, adjusting entries or period end entries. This is going to be in tab nine, so we're currently in the tab nine down below. I'm going to scroll back down and I'm looking at the information on the left-hand side. Before we get into the adjusting entries, do want to just touch on number seven here, which is volunteer time contributed for general activities estimated at $15,900. So just note when this is a common kind of question for not-for-profit organizations, what if there's volunteer activities? Because we've seen other types of areas where we have said, someone donated, say, a building and we recorded that as a contribution or donated something such as equipment that we used in the organization and we counted that as basically kind of like income to the organization. What about volunteer time? You would think that would be income to the organization as well. But really, we're not recording the volunteer time if it's just for general type of work, work that you could think is non-skilled or work that pretty much anybody could kind of do and you could see why that would be a kind of a problem if you were to have just general time and you're trying to track that information because it's really difficult to know the quality of time for services that may not be professional type of services. So if the services were for something like professional legal services where there's a market and there's a flat rate for it and it's going to be something that's going to be a specialized type of area where someone with some type of professional skills needed, then most likely you'd put it on the books as income and value it and rate it as the time. But if it's just volunteer time for normal kind of labor or unskilled labor as they might call it, then it will not typically result in a journal entry. So no journal entry for number seven. Number eight, so amount of pledges estimated to be uncollectible and then we have the depreciation. So the estimates declared to be uncollectible. Let's take a look at that first. If we scroll back on over, this is a similar concept to a for profit type of organization. We have these receivables. Now the receivables are even less likely to be collectible in some ways than a for profit organization. If you have a receivable in a for profit organization, then you've done work. You've either done services most likely or you've done given goods and therefore a transaction has been made. There's been there's been an exchange that has happened. And so you kind of have a right to believe that, you know, there's kind of a contract in essence or an agreement has been made in some way, shape, or form with regards to the receivables here. There's kind of still an agreement, but it's more like just a promise. There's not a mutual exchange that really happened typically because the receivables are often a result of simply promising to pay for something that we haven't given as the organization. We haven't given anything. So depending on the type of organization that the receivables, the amount of receivables that are going to be uncollectable, and our ability to follow up on collections of receivable based on an exchange having taken place, maybe, you know, there might be a greater amount that are going to be uncollectable, or we might have less power to collect on on a promise that doesn't isn't backed up by some kind of exchange that has happened. So therefore we need to basically say, hey, how much of these receivables do we think are going to be uncollectable just like we would with a for profit. Now we're not going to get into the details of how you would estimate that we do have a course on allowance for doubtful accounts and estimating receivables if you want to get into that in more detail. But in but in essence, you might look at something like an aging account and see and then percentage look at past the past and and project into the future, how much of the receivables we think are uncollectable. Once we do that, we're not going to write down the receivable count account directly, because we don't know which accounts are not going to be receivable. And if we were to write down the receivable account, we would have to assign a customer and it would mess up our collection ability where our sub ledger wouldn't line up because it would be difficult to line up the sub ledger. And also we want to tell our reader, hey, this is just an estimate. In other words, if we make another account, a contra revenue account like allowance for uncollectable pledges, this tells the reader, hey, look, this is an amount that we think is going to be uncollectable. It's just an estimate. This is the amount that is actually on the books that we're trying to collect on the difference between the two is our as is our estimated collectible amount. So therefore, we're going to be decreasing the allow or we're going to increase the contra allowance, decreasing the net receivables. And then if you scroll down the other side, then if you think about it, what happened here, the contributions generally without restrictions is generally overstated. If you're saying, hey, look, the accounts receivable, we're not going to collect on them. What's the transaction to get the accounts receivable on the books? You debit the accounts receivable and your credit revenue. So you're saying, so we got to think here, well, if you're saying that revenue is overstated, then you would think that the contributions of revenue or if you're saying the accounts receivable is overstated, then you would think that the income is also overstated. And so you'd think that the other side would decrease the income account. So either you increase decrease the income account to fix this, or oftentimes we don't do that because we often just have the income account go up and the other side then goes to an expense account. So in other words, either you should decrease the income, or we'll do the other, which is to increase an expense, which is what we will do here, we're going to increase an expense, which is provision for uncollectable pledges. So there's the provision for uncollectable pledges. This is basically equivalent to bad debt expense for a for-profit organization. So there's the transaction that we need. It's going to be looking like this in terms of a journal entry. So I'm going to go ahead and highlight this. I'm going to make this green. We're just going to do this with an adjusting entry. This is a month end adjusting entry. We typically do this at a cutoff date at the point in time that we need to make the financial statements as of this is typically something that an accountant would help out with possibly a CPA firm to help out with on the valuation. In other words, you might separate to some degree the data input type of activities, the bookkeeping more kind of data input activities versus the month end activities where you're going to make the financial statements as accurate as possible on an accrual basis or whatever basis necessary for whatever reporting needs that you need for those reports. Okay, so now we're going to go back to QuickBooks. We're going to hit the plus button. We're going to go into the other section on the right. We're going to go down to the journal entry. We're going to be entering the journal entry. We're going to be using the old debits and the old credits. This is going to happen as of the end of the month. So I'm going to say January 31st and picking up our debit and credit over here. We're going to be saying that this is going to be for the provision for uncollectible pledges. Now we almost certainly do not have that account in QuickBooks yet in our default account. So I'm going to copy this and I'm going to add the account. So I'm going to go back on over here, see if they let me put that full long name in there and they do it looks like. So I'm going to say that it's going to be not a bank account, but an expense type of account. So this is going to be an expense type of account. And then on the detail item, I just want really other because I don't have a whole lot of purpose on other business expense. And then the name is what's important. There we have it, the name and the type expense type. Let's save and close that. Then tabbing through, I want to put on the adjust on the description just that it's an adjusting. I'll just put a DJ entry and that tells, you know, the reader, whoever's using it, as well as the normal accounting department that, Hey, look, this is the adjusting process. So which might be separate from the normal bookkeeping process. I forgot the amount, which is 21 six. So here's the amount 21 six. And we don't need a name and the class, we're going to keep it as unclassified right now. And again, we'll go in and break out those classes, as we said, with the light with the other with the other expenses as well. Then the other side is going to go to the kind of like the allowance type of account, which we're going to call up here. And once again, they almost certainly do not have it in QuickBooks, I'm not even going to look for it in our default chart of accounts, I'm just going to add it here and add it tab. And this one's going to be now you might think, Hey, we should put this in account and accounts receivable type of account. But the accounts receivable account is a little bit tricky because they require you to add a customer to it. And that the whole point or part of the point is we don't know which customers to apply it to. So what we need to do then is put it into an other current asset type of account. So we'll put it into other current assets. And then allowance for bad debt is actually that it's actually a good account for it there. Although again, it doesn't do much. I'm not sure what that field does, but here's the name. That's what we want allowance for uncollectible pledges. And then we're going to say save and close on that one. So that looks good. There's the credit adjusting entry that looks good. So let's go ahead and save this. I'm going to say save and close and QuickBooks says, Hey, you're missing the class field. So we're like, thanks for letting us know. But that's okay. We've thought about that. We're going to record it. We're going to then go to the reports. Let's go to the reports on the left hand side. Let's open up the balance sheet and the income statement starting with the old balance sheet. Opening up the balance sheet, we're going to change the dates up top. We're going from January. Let's bring on out to December 123120. 123120. Then we will run that report. Then I'm going to copy this report. I'm going to go to the tab up top, right click on it and duplicate the tab back to the tab to the left of them. And let's do the same thing for the P and L, the profit and loss, the income statement. So we're going to open up the standard P and L report. Here it is, the P and L want that's the one we want. And then I'll change the date range once again from January. Let's bring it out to December just for the fun of it. As long as it's including January, we should be okay. Run that report. Then let's close up the hamburger and hold down control, scroll up just a bit to get it up to that 125 that we like to be. That's too far. That's 150. I like it at the 125. All right. So what did we do then? If we go to the balance sheet, let's go back to the balance sheet, close the hamburger. And we have this uncollectible account now. So the allowance for uncollectible pledges has now been increased. Notice it's a negative amount because it's a contra asset account. In other words, we've got the receivable on the books at that 217.1. This is kind of connected to the receivable. So the net amount is going to be that minus this amount here. Now also note that this was also that this discounted amount we saw in a prior presentation is basically also a contra account of this receivable. So these two things are basically decreasing what we think the net value is of the receivable telling our reader once again, that here's the amount that we actually hope to collect. Here's the amount that we think is uncollectible. This amount is a discount for an amount that we don't expect to collect for some time due to the time value of money. All right. And then the other side is going to go on to the P&L, the profit and loss, where we should have an expense item down below for the provision for uncollectible pledges. If we go into this account, note that it will then say that it's an adjusting entry and be in a journal entry format, which will help people to understand and see that, you know, this is part of the adjusting process. So in other words, if you're in the normal data entry bookkeeping and not in the adjusting department is separate, you can see, oh, that's something funny that the adjusting people did, hopefully doesn't mess us up too bad, right, to make the financial statements correct for reporting purposes as of the end of the period. Okay, so I'm not going to report it by class now because it would go into unclassified as we have seen before. We will deal with the allocation of classes in a future presentation. So I'm going to go back up top. I'm going to right click on this tab and duplicate this tab. So we now have the balance sheet. We've got the income statement or P and L profit and loss and then the tab to the left where we will do new stuff. So let's go back on over to the expense form here and see the next item, the next one we're going to do, I think deals with depreciation, the next adjustment. So in thinking about depreciation, I'm going to go back up to number five where we put the depreciable assets on the books. Now we're not going to get into a lot of detail on the calculations for depreciations because there's a lot of variance within the calculation of the depreciation. But just note the idea and the principle of this is that we're going to be putting this on the books. So we're going to put this equipment on the books as we have done in a prior presentation, not as an expense, but as an asset that we put them on the books up top as an asset. Why? Why didn't we expense them? Because they're going to be long live. They're going to be used for a long time into the future. And if we expense them, it'll distort our matching principle. We won't be able to match one period to another period as well. Therefore we're going to put it on the books as an asset and then allocate the expense out over the time that these are going to be used. Then of course the question is, well, how are you going to allocate that out? How are you going to figure out how much to allocate? And that's where the confusion comes in because there's different methods to use and there's different useful lives to use. And if you think about a tax depreciation method, if there's reporting purposes for the not-for-profit organization for taxes, it may differ for taxes than for the normal bookkeeping as well. But generally the rule is that you're going to take all the depreciation methods, kind of start or stem from a straight line method, which is the first thing you would probably think of if you were faced with this problem. You're going to say, oh, well, I don't know. If it's 24,500 and I think it's going to last for like 10 years, I'll divide it by 10 maybe. And then I'd have 2,400 a year or something like that. That's how you start to kind of think this out. And then you can think about other methods that would go into it. So again, I'm not going to get into the methods right now. You also might think about the depreciation being helped to be done by your tax professional because all the equipment purchases typically need to be put into the tax return and they will typically help to generate the depreciation schedules, tax and books possibly, which can help you to then they can give that information to the bookkeeper that can then record the depreciation. And in that case, we would basically know the depreciation amount from the tax professional and simply need to record the journal entry. So what's going to happen then we're going to say, okay, this equipment needs to go down, but I'm not going to write it down directly because it's just an estimate. So we're going to do a similar thing here. We're going to tell our reader, hey, look, this is just an estimate. We're not going to write down depreciation directly. We're going to put it into accumulated depreciation. Therefore, you know, this is what we bought it for all the equipment more than one piece. And this is the depreciation or accumulated depreciation for its life. Then the other side going to depreciation expense down below increasing the expense of assuming it's increasing as it is used as opposed to as a point it was purchased. Therefore, the entry is going to be looking like this. I'll make it green because that's the one we're working on at this point. And then we'll enter it in the system in a similar fashion as we did for the prior journal entry. So I'm going to go back on over. We're back on the first tab. I'm going to open up the old hamburger going to hold down control and scroll down. So we get to the 100. So it doesn't do anything funny. Then we're going to go to the new tab. We're going to go to the other on the right side. We're going to go down to the journal entry back to the journal entry. We're going to add these as of the 31st. These are always at the end of the month at the end. And we're going to say, all right, did they have a depreciation expense account? I don't think so because I don't think they had a fixed asset type of account, but we'll look. So I'll look it out. I'll look it over. I'll look it out. Look it over this way. And then I'll try to type in a depreciation. No, they don't have it. So depreciation going to add it. It's going to be an expense type of account. So we're going to say, Hey, this is an expense type of account. And right here. And then the other side, I'll just put like other expense. And then it's going to go into depreciation. So that looks good. Save and close amounts. What's the amounts going to be given to us by the tax professional possibly 4,400 4,400. We'll just take that number and run with it. No class that we're going to be put in here. The description we do want to put that it's an adjusting entry at the minimum. Just to say, just tell our readers or whoever's working with the books. Hey, look, this is what those funny adjusting department people did. The other side is going to go to accumulated depreciation. So I'm going to say accumulated depreciation. So it's spelled like this or this is how I'm spelling it. I think that's right. It's going to be accumulated depreciation. And then I'm going to say tab and then add the account. Now the account is going to be a fixed asset type of account. We're going to say it's a fixed asset type of account. It's going to be accumulated amortization. Now accumulated depreciation. Again, this doesn't matter much, but I'll put accumulated depreciation. That's what it is. And there we have it here. So that looks good. Let's go ahead and save and close that. And then that looks good. We don't need a class. We're not going to do the classes at this point. So let's save that and see what happens. We're going to go ahead and save. Say yes. Thank you for the reminder QuickBooks. Then go back to the balance sheets and then we're going to scroll back up top. I'm going to run that report again. So we have a fresh report. We can work with the fresh report. Hold down control. I'm going to scroll up just a bit to get us back up to that 125% because that's where I like to be. And then I'm going to scroll down and we got in the fixed assets, the accumulated depreciation. Now note that the equipment's on the bottom, the accumulated depreciation's on top. That's kind of backwards. Why does it do that? Because it's under the fixed asset category as it should be. And then by default, it then goes to alphabetical order. So that's a little funny. You can fix that by using account numbers, but we're not going to get into that now. And the point is that we have the 4,400. It's another contra asset account because you're going to basically say, Hey, this is on the books for 24,400 cost minus the 4,400 accumulated depreciation. Therefore, the net or book value is the 20,100. And then if we go to the other side, that's going to be on the P and L profit and loss, let's go on over to the profit loss, close up the hamburger. Let's update the report or run that report. So we make sure we're using fresh reports. And then we're going to scroll back down. And there we have the depreciation the 4,400. If we go into the 4,400, we then see the journal entry. So it's a journal entry type of form journal entry here that will help us to see that it's an adjusting entry into the period adjusting entry and not part of the normal kind of day to day type of transactions. Scrolling back up, let's go back to the P and L. I won't go into the profit and loss by class because these will be unclassified at this point in time. And we'll talk about allocating the expenses out to the proper classes in a future presentation. That's going to be it for now. Let's get out of here.