 QuickBooks Online 2023 Reversing entry accounts receivable sales 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 open the free QuickBooks 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. It's online sample company if you want the two open at the same time use incognito or another browser you can open the incognito window if using google chrome with the three dots in the browser incognito window typing into the search engine QuickBooks online test drive we're 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 you can toggle between the two by going to the cog up top and switch the view down below we're opening a few tabs to put reports in like we do every time right click on the tab up top to duplicate it right click on the tab up top to duplicate it again then we're going to go back to the tab to the middle the reports on the left hand side open up the favorite report the balance sheet and then don't say it like that everyone loves the balance sheet and then note that if you're in the the sample company or the business view it's down here in the business overview and then the reports on the left hand side back to Get Great Guitars tab to the right we're going to the reports on the left hand side this time the profit and loss closing up the boogie change in the range in 010123 tab 022823 tab let's see it month by month pour favor run it to refresh it there it is tab to the left closing the boogie those ranges those are changes 010123 tab 022823 let's see the month by month side by side run it to refresh it there's where we have it so we've been doing adjusting entries as of the cutoff date for us being February 28 the adjusting entries being something we do at the end of the period at the end of the month or the end of the year we did one related to the accounts receivable pulling in a receivable or invoice that was entered in the following period but for which the work was done before the cutoff date so to see that let's look at some sub ledgers as well that we have to be concerned with because there's going to be a sub ledger for the receivable and the inventory we also have to deal with and be careful of mindful about anytime we make these kind of transactions to those type of accounts let's go to the tab to the right what happens if you don't if you're not careful right click and duplicate the bookkeeper gets mad at you that's what happens and you mess up their whole thing and then that's not good so let's go to the reports on the left hand side close up the hamburger scroll down and we're looking for who owes you let's look at the customer balance detail report for the detail on the customer on the ar so that's one report that we have to be dealing with where we saw down below we added another customer for zzz down here to put our adjusting entry in place with a journal entry which is unusual because all other open transactions are in place from basically invoices generally or payments if there was a deposit which we'll deal with in the future right click on the tab again duplicate again let's do the same for the inventory report so i'm going to go down to the reports on the left hand side close up the hamburger type in the inventory we're looking for the valuation summary report let's do that as of the end of march oh three thirty one two three run it and the reason i did it for the end of march is because we entered a transaction if i look at my float chart we have an invoice that's usually the form when using an accrual based method when sales is recorded it is the form when quickbooks will record sales but we can imagine a situation where the invoice wasn't entered in the period the work was actually done easiestly seen when you're talking about like a job cost system where you have to track the time and then enter the invoice maybe possibly the invoice being entered then after the cutoff even though the work was done before the cutoff and therefore on an accrual basis method we should pull that revenue back into the period it was earned rather than when the invoice was entered that's what we're doing here so last time we entered an invoice after the cutoff date in march we did an invoice that has inventory related to it to add another level of complexity and then we made a journal entry to pull that that invoice back into the current period not by entering an invoice but with an adjusting entry now we're gonna reverse that entry so that we're in the proper period in the following month and we don't mess up the accounting department so if i go back on over and we'll say okay let's go back to the first tab and let's extend this one more month let's go to 033123 and then run it so our cutoff date is 228 and then we're going to reverse it as of march let's see that on the income statement two let's put this out to 033123 run it so this is most easily seen here on the income statement the actual invoice was entered in march but we with the the work was actually done in February therefore we did an adjusting entry to record this 500 and 400 included in the line item in February so that makes the financial statements correct in February but now if i don't do anything to fix it i'll have entered it twice in by the time march is in place and it's March 5th is when the transaction took place so now i have to do a reversing entry now remember you might say well why don't i just why don't i just go into the invoice that was entered in the wrong date we're saying and change the date and the the problem is that it's not exactly wrong possibly with regards to the system that the accounting system is using maybe they do their invoicing every two weeks for the for the work that was done in the prior period or something like that their system is right for their accounting system it's just not exactly right on an accrual basis which is what is requiring the adjusting entry i don't want to mess up their system i just want to make it correct as of the cutoff date so i can make the financial statement reports correct and then do the reversing entry so they can do whatever they need to do so last time we did this adjusting entry so if i can see it if i drill down in here and i look at this journal entry this is the adjusting entry we did it's quite complex of an adjusting entry because invoices with inventory and sales tax can be quite complex what i need to do now is reverse it so that it's not entered twice and the reversing entries happen the first day of the following period in our case cutoff 228 the first day and the next period march 1st now to do the reversing the easiest thing to do is to just copy you know maybe take a screenshot of this you know and then and then reverse it exactly right you might take a screenshot and say okay that's what we did here i'm just gonna put that down here somewhere and then i'll reverse that exactly let's just think about the process of the reversing with our journal entry up top and and because a lot of times people get a little bit messed up with these debits and credits we're gonna have to use in essence journal entries because it's kind of a complex transaction we can't just use ledgers there's not just two accounts affected and when people use journal entries they start to think well i need to put the debits on top and the credits on the bottom and then that kind of messes up the the the the ability to just do the opposite that you did before so i wouldn't think about that i'm not going to go i'm going to put the debits on top or anything i'm just going to do the exact same thing and reverse it also note people often try to think about a reversing entry this is an entry similar to a credit memo by basically just trying to imagine what happens in the credit memo or in the reversing entry instead of the easier way thinking about what the normal journal entry is when we enter the invoice this is the transaction mirroring an invoice with the adjusting entry and then just doing the opposite doing the opposite from top to bottom instead of trying to reshuffle the accounts so here's the transaction we did last time i'm just going to reverse it i'm just going to put the ar on top and i'm going to credit it so usually we would have the debits on top but that's confusing i'm going to put the credit on top because that's the easiest way to imagine what's going on and then i'm just going to reverse here's a debit to the sales and then i'm going to reverse the sales tax this is going to be a debit to the sales tax and then the cost of goods sold we're going to have a debit to the cost of goods sold and then the inventory we're going to have a credit to the inventory so we're just doing the exact opposite i just messed these two up hold on a second okay hold on this needs to be over here see even when i just copy it it's messy so is that is that right yes so now we just did we just basically did the same accounts top to bottom i think that's the easiest way to visualize it reverse the debits and credits which might be difficult to do in your head because you always want to put the debits on top because that's what you've been trying to do resist the urge if it's easier to have an audit trail by not doing that if it if it makes it more simple to go back and see what you did or figure out how to do it then i'll let that rule go because it doesn't doesn't serve you any purpose it just complicates things and if you have a picky supervisor or something first do this and then put the debits on top after you figured out what you need to do so that's what we need to do remember that the accounts receivable is one of the issues so because we can't record to ar without having a customer so we instead of using the customer we actually made the sale to we made another customer called zzz so that all the detail related to them and the sub ledger and the detail in the customer center will hopefully not distract the accounting department and then the other one is the inventory which we saw was actually going to be out of balance because we were allowed to record 400 dollars to it without an inventory item so it's out of whack it's out of balance by 400 we're going to put it back in balance and that's kind of good that it let us do that in this case even though it's a little risky because you could if you're not careful throw the ledger the sub ledger out of balance but here it's it's good because now we don't have to post something to the sub ledger and mess that up to do our our adjusting entry so that is going to be that also note that this should look unnatural with regards to the sales and the cost of goods sold because sales doesn't normally go down sales doesn't decrease so it's going to look funny when we record it and it should look funny in terms of debits and credits but it'll make sense because when we when we match it out to the actual invoice it will it will nullify the invoice that was entered in February so what we did the actual invoice was entered in March I'm sorry it was entered in March we pulled the invoice into February with a journal entry but we didn't delete the transaction entered in March so now the financial statements are correct as of the cutoff date February 28th but it's going to be entered twice once in February once in March so instead of deleting the item in March we're going to nullify what happened in March by reversing the transaction which will net out against the transaction entered in March so that it'll nullify the transaction so that's that's the idea all right so let's do it we're going to go back on over we'll enter a journal entry I'm going to close this back out and we'll enter the journal entry so I'm going to go up and let's go back to our reports back to tab number one and we'll hit the plus button we got to do it with an actual journal entry because the register isn't going to it's too complex of a transaction all reversing entries are as of the first day of the following period 3 1 March 1st in our case and I'm just going to reverse exactly what we did here so boom accounts receivable a to the r accounts receivable and I have to put 525 as a credit I have to put a customer I'm not going to put Anderson I'm going to put zzz which is the customer I made up just for my purposes so that it shows up at the bottom of the customer center and hopefully doesn't bother anyone and allows us to record our necessary adjustments to the accounts receivable then we've got the sales of product that's going to be the income account and that was for 500 that we need to debit that that should feel unnatural because income is usually always credited it never goes down typically but this is a reversing entry so the rules are accepted this is an exception to the rule is what I'm trying to say entry stop talking I can't think when you're talking okay here we go and then the next one is going to go to California California department that the sales tax payable okay and that one should be good and then we're reversing the cost of goods sold this one should also look unnatural because cost of goods sold usually only goes up like all expense accounts and now we're taking it down with a credit usually goes up with a debit we're taking it down with a credit but that's because it's a reversing and then the other one is inventory and inventory we never post to inventory without a without a sales receipt or an invoice or a bill or an expense form but this is the exception because it's an adjusting entry it's going to put us back in balance I'm mindful of the sub ledger it's not going to mess us up it's going to actually fix it all right so does that look everything looks good is everything movie B to the end not just be in man I'm movie being I'm movie being so we're going to say it let's save it and close it and check it out so then we'll go to the tab to the right and check it out run it so now we have the adjusting entry for accounts receivable that is in here there's our adjusting entry in the A to the R increase in the AR which makes it right as of the cutoff 228 and then we reversed it if I go into March we reversed it in March with the journal entry and that journal entry nullifies itself out in March against the actual invoice which means it's only just recorded in February so now you might get into the same question of why did you why did you enter it as of 31 instead of 35 if the invoice was entered in 35 why don't you just enter it in 35 and then you won't have five days of it being kind of not exactly right because it's showing like this negative amount for five days why don't you just enter it as of 35 why because I want all the reversing entries to be easily found and I'm sacrificing the fact that the financial states statements will not be as perfect in the middle of the month in order to make it as easy as possible for us to be correct as of the periodic statements and to allow the accounting department to do whatever format is easiest for them to do so I'm going to go back to the tab to the left and let's go to the profit and loss the P and the L notice that we have it nullified so we once again adjusting entry pulled it into the income over here and we're back down to zero on the income statement and so if I go into the March we've got the two items the reversing entry and then the actual invoice nullifying each other out it's not going to look correct because you got a negative revenue for five days but then after that fifth day when the invoice is in place it nullifies itself and I'm okay to have a negative amount showing up for five days because again we're sacrificing a little bit of inconsistency to have all our reversing entries happen as of one day so we can know where they are going back to the tab same thing happens with the cost of goods sold here same thing happens back on over with the sales tax if I go down to the sales tax we entered the journal entry for the sales tax to make it right in here there's the adjusting entry and then we've got the reversing entry and the the actual invoice nullifying themselves in the following period it's not going back down to zero because this is a permanent account as opposed to the income statement accounts and then if I go up to inventory we've got the inventory is is back you know in alignment so same thing happens here we did an adjustment inventory impacted with the journal entry and then in March we entered this one and we're back uh good to go so that it's is good so like if I look at my inventory report then let's say I made my inventory report over here as of uh 022823 and run it so now I'm at four seven let's pull out the trusty calculator trusty calculator I'm at four seven four six which doesn't tie out as of the cutoff date to what's on here it's at here it's at four three four six difference by four hundred why because I did an adjusting journal entry and remember anytime I do something to inventory I should do it with an invoice or a sales receipt or if I'm buying inventory with an expense check bill form if I'm just entering a journal entry I'm not adding the item and therefore I can throw it out of balance so that's what I did but I did it mindfully saying okay I know I'm gonna throw it out of balance because because I'm trying to make the actual dollar amount correct as of that time frame I know the inventory item that was impacted I could adjust it here's an ELP I think I could adjust it if I need to report the sub ledger but I don't want to mess up QuickBooks sub ledger or anything like that right so I can't really report the item with the inventory but then when I did the reversing entry I'm back in balance the four three four six ties out to what's on the sub ledger as of oh three thirty one two three this is back to four three four six so we're good we're good to go after after the reversing entry notice the sub ledger for for the customers if I run this this one forces me to use the customer so I couldn't post something to AR without posting to some customer I didn't want to post to Anderson otherwise I would have some weird thing invoice journal entries in here so I put all the weird stuff journal entries down into its own customer down here notice that these two net out to zero but I don't have this nice connection thing I can't really tie them out it's still showing on my detailed report which is kind of ugly right so it's still kind of a messy thing down here because everything else if I if I net it out the invoice to a receipt payment QuickBooks would tie those two things out and wouldn't show them in this report as an open invoice these two are back down to zero but it's not netting these two things out that's the problem now if you don't want this ugliness down here then you could create another accounts receivable account but you would have to make it like an other current asset account so there was no sub ledger related to it just so you can put your adjusting entry into it if you want to do that that's okay but this is kind of the work around so that at least you don't have that ugly stuff in the actual customer in other words if I go to the first tab and I go down to the the sales area which is the customer center and go into the customers which by the way if you were in the book the business view that's under the get paid area get paid and pay area such a classy name and it's in it's in the customers all right closing that back out so then you got ZZZ down below so this junk in here these journal entries are not showing up in an actual customer and hopefully are down below and out of the way that's the idea all right so it's going back up I think I think that is that is everything so let's take a look at our reports tab into the right to do so right click and let's duplicate it and let's check it out let's go down to our reports on the left open up some reports close the bookie I'm going to type in the journal report journal and let's do it as of the cutoff date 022823 022823 run it and then I'm going to filter by journal entry customize filter filter and that's not filter what filter and then we're going to go by journal entry run it okay so there's our adjusting entry here's the big one we looked at that's what we did last time we then reversed it as of the first day of the following period so I'm just going to go up one day to march to march first boom there's the reversing entry all right let's open the trial balance to trial balance let's go to the uh hand buggy reports type in trial balance and here we go the balance is on trial again we're on trial again I'm always on trial I'm sick of being on trial man 033123 and this is let's see it on a month by month we're going to go for the three month three months side by side there's where we have it so there's where we have it this is the cutoff date this is the month after the cutoff date when we did the reversing process to put the bookkeeper back where they want to be without messing them up hopefully and if your numbers tie out great if they don't then I'm pretty sure that you messed up because my stuff is right I feel like I feel like I did it right I don't know maybe I'm wrong sometimes I'm wrong every once in a while but in any case we'll do another journal entry report at the end of the adjusting entry process to further drill down on any differences so we can at least see what the differences are and then we can argue about who's wrong and who's right