 QuickBooks Online 2023 Reversing Entry Unearned Revenue Customer Deposit Get ready to start moving on up with QuickBooks Online 2023 Here we are in our gig-grade guitarist practice file. We started up in a prior presentation using the 30-day free trial. We also have open the free QuickBooks Online sample company. You can open the two at the same time using Incognito. 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. Or another browser, you can open Incognito if using Google Chrome by selecting the three dots in the browser Incognito window, typing into the search engine QuickBooks Online Test Drive. We're using sample company to compare the Accounting View, the One Get Great Guitars file is in, and the Business View, the One Sample Company is in. Change between the two views by going to the cog up top, switch the view down below. Opening up some tabs with some duplication of the tabs to put reports in as we do every time, right-clicking the tab up top to duplicate it. And then we're going to right-click as it's thinking to duplicate it again. Tab to the middle, go down to the reports. We want the balance sheet, the two famous reports, the financial reports. By the way, if you're in the Business View, that's located in the Business Overview and the reports. That's where the reports are at in the Business View. Back to the Accounting View, tab into the right, reports on the left. We're going to open up the profit and loss as well, close up the ham, boogie, and change the range. Mode 101, 2, 3. I'm going to go out to O3, 31, 2, 3. Our cutoff date is 228, but we're going to go to 331 for picking up the reversing entries that happened the day after the cutoff date. Let's run it and go, and also I want to see that month by month. Hold on a second. Something's not right here. Let's see it on a month by month so that I can see Jan, Feb, and March, and then the total. Let's go to the tab to the left, do the same thing. Close in the ham, boogie, change in that range from O1, O1, 2, 3 to O3, 31. Not one day three, 31. And then run it on a month by month and then run it to refresh it. That's the set of process we do every time. We're focused here on the cutoff date being 228, February, but we're going to do a reversing entry this time, which is going to be as of the first day of the following month. Last time we did a fairly, you know, one of the more complex adjusting entries that oftentimes won't be there unless you're in the type of industry where you have to deal with an unearned revenue situation. So let's do a quick recap. Just get to back in the mindset of this. We've got the unearned revenue down below. It's a liability account. If I go to the flow chart, you'll recall we're looking at the revenue cycle. At the end of the day, we're expecting to have cash go up at the end of the revenue cycle in some way, shape, or form. That might happen in the easiest kind of cycle depending on the type of industry we're in where we might just have like gig work. We have a deposit. We just increase the deposit, increases revenue, possibly with the use of the bank feeds. If we're at a cash register, we'll typically use to create sales receipt. Still a cashed-based system, but we're going to have to do the sales receipt and then deposit. An accrual system means that we have to do the work first and then invoice or bill the client, then track the accounts receivable, receive the payment, make the deposit. But some industries actually get paid first. That's when you have this unearned revenue situation. It might be a type of industry where all their revenue is basically unearned at first, such as a subscription model, magazines, newspapers, applications these days, where they might get paid for like a yearly subscription or something. They haven't really earned the money at the point in time they got paid and therefore it should really technically go into a liability account as opposed to income when they collected the money and then they would need to do an adjusting entry periodically in order to account for the revenue that has been earned, the subscription that has actually expired on a periodic basis. Here, however, we're looking at a situation in our example problem where we have deposits on an inventory purchase that's going to take place in order for the customer to commit and us to hold on to the inventory product or order the inventory product for them, for them specifically. So you might have a similar situation in a rental situation where you have the last month rent or something like that. Once again, you got the money before you gave them the goods or services. That's an unearned revenue kind of situation or a customer deposit, you might call it. In other words, when you get the money, you should record it as basically a liability down here in unearned revenue. Now, logistically, however, as we discussed, it's not as easy to put it in unearned revenue down here because you want to be tracking it in the sub ledgers. So if I go back to the tab to the left and we go down to the sales, which is the kind of customer center and then into the customers. And if you're in the business view, by the way, that would be under the get paid and pay area and then the customers. That's where the customers are located. And then within there, you can then track your information by customer. So if I went into this Anderson guitars, if I recorded something to unearned revenue, it wouldn't be reflected here in the customer center, which as on the bookkeeping side, the accounting side is what I use to communicate with the customer. So I would like things to link up. They link up quite nicely if we use an actual receive payment form. So we enter the receive payment before the invoice. That usually decreases accounts receivable, but now it doesn't have an invoice to apply to, which means you have this outstanding, which you might call outstanding credit, that can then be applied to a later invoice when the customer pays. So that means we're going to, we have this situation where it's not quite right when we get the first deposit from a financial reporting standpoint, but it looks good. It looks correct from a bookkeeping standpoint. And that's why we're doing the adjusting entry. So if I go to the tab to the right, let's just take a look at the sub ledger for accounts receivable, right-click it on the tab, duplicating it. And we're going to open up another report on the left-hand side, reports on the left-hand side. We're going to close up the handbookie and scroll down to who owes you. And we want to open the customer balance detail report customer balance detail. Let's run it as of a custom date of 022823. And so the total of this broken out by customer adds up to 2315150. That should tie out to what's on the balance sheet as of 228 and the accounts receivable 2315150. So that looks good. And the issue was that we had a couple that had this negative receivable. You can't have a negative receivable for a particular customer because that means that would mean that we owe them money, which means it's a liability, not a negative receivable. Therefore, we did an adjusting entry for these two clients that had or customers that had a negative receivable for 450 and we increased accounts receivable. Over here, we increased the accounts receivable for that amount if I scroll down and we did that by the 450. And then the other side went to this unearned revenue, the liability account. So we just properly recorded it as a liability instead of a negative asset account. So it's a little bit different than a book problem where you deal with unearned revenue, in which case you're usually thinking about a situation where all the revenue that a company gets is from unearned revenue like a subscription model, in which case you would just keep on increasing unearned revenue when you collect your money on a subscription model and then you'd have to determine how much of the subscription had expired periodically at the end of month or year, decrease unearned revenue and then record the revenue properly for the amount that had actually been earned. In this case, we're dealing with just unearned revenue for like a security deposit type of situation. So it's a similar situation, but it's a slightly different scenario here because we're dealing with the concept of we need to be able to be able to have supporting information for the accounts receivable and the sub ledger. And so notice that this adjusting entry does not have a balance sheet account and an income statement account. It's an adjusting entry with two balance sheet accounts. So it's not really like a classical adjusting entry, which usually has a timing difference between balance sheet and income statement type of account. Okay, so that said, now we've done that and I can see that over here in my sub ledger as well because they forced me to record something to a customer whenever I record something to accounts receivable. But I didn't want to record it to the actual customers in question. Eric Music here because that would add it to the detail in their customer ledgers. Therefore, we created another account down here and just called it ZZZ, trying to put it at the bottom out of the way and this customer account is going to have all our adjustment entries. They have journal entries in them. That's not what you usually want to see in a customer type of account. So that's why we kind of tried to bury it down here at the bottom because they're not going to match out. Usually you would see invoices and receive payments that tie out and once they do, then this whole thing would kind of disappear. It wouldn't be on this report anymore. For example, here in this one and this one, you would expect it to tie out. It doesn't because we don't have an invoice and a payment. We have two journal entries, so it doesn't quite work the same way. That's why we put it into the account at the bottom. Now, remember, if you don't want to do that, you could create another accounts receivable account, but you'd have to set it up as something other than accounts receivable type of account like other current assets so that you don't have the sub ledger related to it. Okay, so now we're just going to reverse it as of March 1st because remember, the bookkeeping process is not wrong. Their process is just fine. It's just that we need to make it the financial statement reporting more correct as of the reporting basis on a periodic basis, monthly or yearly in our case as of February 28th, the cutoff date. So then I'm just going to reverse it as of the first day of the next period. Note all reversing entries are going to be like the first day of the next period. I'm not going to try to try to get it to be more correct for a longer period of time. In other words, you might say, hey, why don't I just figure out when the invoice is actually issued in March for these items? And then if the invoice was entered in March 15th, I can do the reversing entry as of March 15th and then the statements will be more correct for 15 days of March. But my point, my goal is not to make things more correct for 15 days is to make the adjusting and reversing process as easy as possible, having all transactions on one day, sacrificing the fact that the financial statements will not be perfectly reported in the middle of the month or if I was doing this at the end of the year, in the middle of the year. Okay, so then if I did this adjusting entry, the easiest way to do a reversing entry, I should say, is to look at the adjusting entry and then just do the opposite. So let's go back over here in an unearned revenue. And if I go find the unearned revenue, where did the unearned revenue go? It is right there. If I go into it, then I could then just say, okay, let's go into that journal entry and say, there's the transaction. I'm just going to do the exact opposite. So you might even take a screenshot of the adjusting entry and then reverse it. This one's fairly basic. There's only two accounts affected. I'm going to use a journal entry to reverse it as opposed to using the register because of that issue with a name needing to be put in place for the accounts receivable. So I'm going to close this out. I'm going to hit the ham. Let's go to the first tab to do it. Let's go back to the report. Then go to the first tab. Then let's hit the plus button and go to journal entry. Now all the reversing entries are going to be as of 3.033123, the first day of the next following period. And now note that you might say, hey, I'm just going to reverse it and put the debit on top and the credit on the bottom. But usually when I'm doing a reversing entry, I like to have the accounts the same from top to bottom. There's only two accounts right here, so it should be easy to see either way. But just as a general rule, I'm going to say, this is a reversing entry. I'm just going to mirror the order of the accounts, accounts receivable on top, but make it a credit of 450. That to me is easier to compare to the adjusting entry, easier to build, easier to enter. Some people get upset if you don't have the debits on top. But I just think that's an easier way to go. So that's what I typically would do. And when you have longer complex entries, like we had with the invoice, then it's a lot easier to do, I think. So this is going to be a reversing entry. The name, I have to put something here. I'm not going to put the name of the actual customers involved, but ZZZ. So it'll be out of the way, not mess up the accounting department on the day to day. And then here I'm going to put unearned revenue, unearned revenue, liability account. And there it is. No need for a name on that one. And so let's do it. This is going to, as of the first day after the cutoff date, reverse it so it's going to decrease accounts receivable, putting it to that ZZZ customer in the sub ledger, and unearned revenue back down to zero. So we're back to where the bookkeeper was before, so we don't mess them up. Save it and close it. Let's check it out. And we'll open up the balance sheet, run it. So now accounts receivable is good as of here, right? We're still, we still have that 450 in place, but then we reversed it in the next time frame so that we're back to where we were here. So that now the next step that the client is, that our bookkeeping department's going to do for Sam the guitar man, for example, if I go into Sam the guitar man and the sales tab, customers, and then go down to Sam, Sam the guitar man. So notice we have this outstanding unapplied thing right there. That's the point. That's very obvious. So if I talk to Sam and he comes in and says, hey, I'm finishing up my sale, we can make an invoice and apply that out to it quite easily. That's good on the accounting or bookkeeping side of things, very transparent. So then I'm going to go back up and say the other side went to unearned revenue and we could see that straight up nice and easily down here. So it was 450 and then we took it back down to zero. No impact on the income statement. If I look at the sub ledger to the right and I run this again, run it again. This is as of 228. So we're good on 228. And then I'm going to bring it on up to 033123 run it. And so now we've got all this journal entry stuff happening down here. Notice it nets each other out 450, 450, the 525, the 525, but it doesn't remove itself from the report because it's not like an invoice being connected to the payment. The journal entries mess things up because they're not designed to kind of match each other out in the accounting system. But again, hopefully it's down at the bottom. So it doesn't mess anyone up if we see that same thing. And here in the customer center, it's in the customer tab. And we didn't mess up like any of our clients here like Sam, but we've got the ZZZ customer down below, which isn't really a customer. That's where all of the junk that we put went. If you don't want this sub ledger at all, then you could do your adjusting entry to another accounts receivable account just to show the adjusting entry. But you can't set it up as an accounts receivable type account because that's what is used to create the sub ledger. You'd have to make it as an other current asset account. And then you wouldn't need to do this whole thing with the ZZZ, which is only here because QuickBooks won't let us post to accounts receivable without using a customer, which is usually good because it forces us to be in balance with the sub ledger, but it does cause problems periodically such as with the adjusting entries if necessary to have them. All right. So that's it. That's all we need to do. It looks movie B to the end. Let's go to the tab to the right and look at our reports. So I'm going to open the hand boogie, scroll down and check it out. Check out the reports. Let's type in journal. Look at the journal and close in the hand boogie as of 022823 to 022823. These are the adjusting entries we did last time. And I'm going to filter them. Customize up top filter by transaction type and journal, run it. So these are all the adjusting entries we did. These two are not adjusting entries, but everything else adjusting entries. This is the last one we did last time, which is going to be reversed. And notice how I'm going to reverse it. Like I put the credit, I put the order top to bottom like this. So it'll be in that order this way as well. So it'll have a credit on top. I did the same thing for this one, I believe, which this one is a fairly complex transaction. So if I was trying to compare the adjusting entry to the reversing entry, it would be easiest in my opinion to have the same accounts from top to bottom as opposed to messing up the order of the debits to have the debits on top and whatnot. So let's go up here and say plus the debits on top and whatnot. What a rhyme, rhyme in it. Okay. So the reversing entry. I think I messed up and entered it as of the wrong date. I think I entered it at the end of the year. So let me go fix that. I'm going to go back on over and say, let's go to my unearned and go into, yeah, I put it in there at the end of the period, but the reversing entry should be at the beginning of the period. So hopefully I put a note in so you see that I messed up purposely, of course. Oh three. Oh one. 23. Okay. So after the purposeful mistake, let's do it again and check it out, run it back. And so let's just refresh the screen this way. So there we go. So I'll close up the hamburger. Okay. So there we have it. Notice I got the credit on top and then the debit. So I can compare it. So this looks a little bit unnatural. If you're used to having debits on top, but again, comparing it, I think works good. Same thing I did up here. We did last time. So that one looks a little bit unnatural possibly because the debits are not on top. But when you compare it to the adjusting entry, I think it's more comparable, easily more easy to look at, more easy to interpret what happened to distill down the story that happened. And if you can format your transactions, your adjustments to better remind you of what you did, then I think that's more important than having the debits on top. Okay. Close, open up the hamburger. We're going to go down to the reports and let's search for the trusty trial balance to see where we stand. Trial, trial balance and we'll scroll up and change the range from 010123 to 033123. Let's take a look at it side by side with the months and then run it. So this is where we are now. We made a change this time to the reversing entry. So our cutoff 228 reversing entry happened in March. So you could check your March numbers if your numbers tied out last time, but you could check any of them if any of the periods involved. And if your numbers don't tie out to this, then we will do some more looking at the journal reports after the entering of the adjusting entries.