 In this presentation, we will enter an adjusting entry related to notes payable and the related interest We're going to enter our journal entry on the general journal in the left We're going to post that to our worksheet Our worksheet is in order with a trial balance assets liabilities equity income and expenses Assets green liabilities orange equity light blue revenue and expenses dark blue We know that we are in balance because the debits of minus the credits equal zero We're currently at 700,000 revenue, which is sales or revenue minus expenses at this time Now this could be a normal planned adjusting entry or it could be something that We have to fix kind of like an error or a problem In other words, we might set up the system in this way to plan for this adjusting entry to happen at the end of the Time period and adjusting entry being something done at the end of the month or a year into the time period In order to be on a more perfect accrual system So to see this what we're doing is looking at this notes payable account here And we can see that the notes payable was on the books for 100,000 and then it was adjusted down to 90,000 for 60 that's what's happened so far What we have here is the terms of the note and the amortization table Now note that a lot of times a bookkeeper may only have this information Because that's all that's given in the note in other words not have an amortization table and they may so if that's the case We may say from an outside perspective at the end of the month or a year Let's just set it up as easy as possible for the people putting in the data to write the check at the end of The month every time we have to pay off this loan the loan being for 100,000 the payments being for 3,180 the problem is they don't know if they don't have an amortization table how much to break out between interest and principle and Even if they did know that it would complicate the system what we want We want them to be able to just do data input Possibly and just be able to enter this check and write the check whenever it's due and that's all they have to worry about So and if they have to worry about breaking it out between interest and principle Then that's gonna change every check We can't just set the system up to say just do the same thing each time Because the interest and principal portions will change So it we could set up the system and say hey when you write the check just write the check and take it out of cash And then the other side will just go to the note payable and that's it as if it was all principal So if we tell them to do that and then we'll just say well, we're gonna fix it at the end of the time period So if we tell them to do that we can see this notes payable here If we looked at the GL or the activity is being made up of these three payments So three payments have happened the note was on the books for the original 100,000 and then these three payments happened instead of breaking out the principal portion to the note payable and then the related interest for those three months everything was just put into the notes payable because That's just the easiest thing to do and now we're gonna go to it at the end of the month and fix it Now that could also happen by accident You might have a note payable on the books and maybe we didn't know how to break it out We didn't have an amortization table So we accidentally just put it all at the notes payable either way at this point in time We're gonna have to say okay. Here's the amortization table We need to tie this out to the amortization table and break out the interest portion at the end of the day This number should be what it should be at this point in the loan Meaning three payments have happened Therefore we should be at ninety two six fifty five at this point and the difference should be interest Which should add up for three months the seven fifty for the first payment seven thirty two and then seven thirteen So that interest should be at two thousand one ninety five So to adjust that then We have this amount here that really needs to be to the two thousand to the ninety two Six fifty five in other words it needs to go up So this is a credit balance. We need to increase it. So we'll do the same thing to it a credit So we'll just credit this account copy this And I'm gonna put that on the bottom and be thirteen right click and paste one two three and Then again, you could think of it a few different ways It's a we could think of it as a subtraction problem. So I'm gonna put negative to flip the sign of We need it to be this ninety two Ninety two six fifty five I'm putting negative and then brackets to flip the sign and then do the math within the brackets and then minus the Ninety thousand four sixty. That's what we have on the books Close up the brackets So all I did was take the ninety two six fifty five minus the ninety thousand four sixty and then flip the sign to make it a negative for credit for our worksheet and We can also think of that by the way by just saying It should be the interest that we're breaking out meaning this seven fifty plus the seven thirty two plus the seven thirteen two thousand one Ninety five Okay, and that's going to be the debit as well So I'm going to be up here to a little plug formula of negative of this number and there we have that I'm going to move to the right just a little Okay, and so now that's going to go to the interest expense so we'll say interest expense right click and copy we'll put that on top in B12 right click and paste one two three We're going to indent this it should be done for you already just formatting home tab alignment increase in denting So let's post this and see if it does what we want it to do. What do we want it to do? We want to record that interest expense according to the amortization table and bring this down to where it should be after three payments ninety two thousand six fifty five So interest expenses here here it is on our worksheet So we are in each ten. We'll say equals point to that two thousand one ninety five bringing this up and brings net income down So we're reporting the interest portion of the payments over and above the paying back of the principal And then there's something in here already. So we're just going to double click on it go to the end of it plus and then we'll point to the note payable and Enter and that'll bring the note payable up by ninety two six fifty five and that will match what we have on our amortization table Why did we have to bring the note up? Remember what happened here? We we took all these interest payments and put it to the note Bringing the note down as if we're paying off all principal But part of that payment of course is due to the rent like kind of us borrowing the money like renting and using the money And it's going to be an expense down here So we put this down too much and we had to bring it back to where it should be This is where the current balance is the difference of two thousand one ninety five is kind of like the rent on the money That's just an expense for the time period used