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Here we are in QuickBooks Desktop Sample rock castle construction practice file provided by QuickBooks going through the setup process we do every time maximizing the homepage to the gray area view dropdown open windows list on the left hand side reports drop down company and financial looking at that P&L profit loss income statement tab 010124 to 1231 to four dates from January to December 2024, gonna customize that report so that we can go to the fonts and numbers and change that font on up to 12. Okay, yes, please. Okay, and then we'll go to the reports drop down again company and financial this time that balance sheet standard date 1231 to four let's customize that report as well with the font numbers changing that font size bringing it up to 12. Okay, yes, please. Okay, that's the setup process we've been doing every time going back to the homepage. We've been looking at the vendor section noting that the vendor represents people that were paying for goods and services with regards to the QuickBooks terminology. The easiest way for us to do that is typically with a check type of form, which might happen with an electronic transfer possibly being tied to the bank feeds in which case we would wait till it clears the bank for example and it would still be though a check type form decreasing the checking account or we might physically write the check which in that case we want to record the transaction typically when we write the check not when it clears the bank so we can track the outstanding amounts and then when they clear the bank we reconcile. We also talked about the fact that we could enter a bill which would be an accrual type of transaction which would increase the accounts payable rather than decreasing the checking account when entered then we would enter a pay bill which is something similar to a check type form that would be the accept that it's always going to be decreasing the accounts payable account as well as the checking account. So now we want to think about well what if there's a mistake? What if something has been entered and we have to fix the thing that has been entered? The first thing that would come to mind is that we can delete the transaction. We're going to be focusing down here on the checks but just note that the same concept applies to other kinds of forms as well. So in other case, in other words if I go to the enter bills for example I go to a prior bill, I've got the bill I might say well what if that's wrong I could try to go in here and delete the bill but you want to be quite careful when you do that because for example this bill might be tied to the check payment. So if I close this back out if you have a payment of the bill that has happened already and you try to delete the bill well that's going to cause a problem in the system. So if you wanted to remove a bill you first have to think about did I pay the bill? Do I have to remove the check and then basically remove the bill? Also just realize that any time that you are thinking about deleting something that's not usually the optimal way or preferred way that we would like to do something because if there is an error we typically would like to fix it with another transaction so that we can see the audit trail we don't usually like to go back and delete things because then the audit trail goes away we would like to say okay I made an error I want to note the error I want to fix it with another journal entry so that would be the preferred method that you'd like to do but again you could go back and delete things QuickBooks is quite forgiving in that way but deleting things can cause problems so you want to be very careful. Also if something is happening in the prior period like the prior year and you're thinking I want to delete something that happened in the prior year you need to be very careful in that case because things entered in the prior year are going to have an impact on the income statement in the prior year which you may have already used in order to record like your taxes or something like that so you don't want to alter the income statement from the prior year because you're going to have timing differences between the prior year and the current year so let's consider this with regards to a check type of form now a normal easy check form would be one in which let's say we actually physically wrote the check we entered the transaction into the system and the other side went to an expense so it decreases the checking account the other side goes to an expense type of form then when we reconcile we note that that check never clears meaning we entered it twice we entered it in error or something like that it never actually got removed from our checking account that's when we have the kind of problems well what should we do at that point in time should we basically delete the check or so on so notice if I go to the balance sheet and just look at a check if I double click on a check for example and I go from 010124 and if we just pick a standard check down here double clicking on a check we could see the check is being entered we could see that the other side is going to this account basically which looks like an income statement account decrease in the checking account the other side goes to the income statement if I go to the income statement down here I'm going to close this out close this out which is also called the profit and loss then we have income and expenses so these expense accounts are going to be the accounts that are going to be impacted on the other side of the checks like if we paid the phone bill for example then the other side here is on the income statement which decreases the income statement but note that the income statement has a time frame so that's recording performance over a time frame kind of like running a race which we'll talk about more when we get to the talking about the income statement specifically so what we want to have happen is we don't if we already used this net income for example to record our taxes or something like that and then we go into the following year I don't want to delete something from the income statement in the prior year because unless I'm adjusting you know something in the prior unless I'm going to make a prior period adjustment because I finalized the prior period therefore I want to make the cut off with that being my final number not adjusting it so I can basically move forward and be good going forward that causes a problem especially if you're going to avoid checks in the prior period if you're avoiding checks in the current period it's not as big of a problem right because then you're in the same period and you can you can avoid the check and you don't have that kind of prior period adjustment if you close the period which for many companies might be down a month by month kind of basis or quarter by quarter basis certainly on a year by year basis because you have to deal with taxes in the income in the United States and income tax then you got to be quite careful so let's do an example I'm going to go to a register go to the banking up top we're going to go to use register and I'm going to say hold on a sec not records out banking I'm going to use the register and go to the checking account okay and let's just enter a check I'm going to enter it as of the end of the last year so this practice problem is currently working in 2024 so I'm going to put it as of 1231 23 as of the end of the prior period I'm just going to call it a check I'm not going to add a check number and I'm going to I'm going to say this is for a vendor let's just let's just make up a vendor we're going to say this is going to be for ZZZ just so that'll be easy for me to see ZZZ and let's say tab and let's do a quick ad it's going to be a vendor I'm going to say okay and let's make the amount something that'll be fairly easy let's say 555.55 hopefully that'll be easy to recognize I'm going to make up another account which I'm hoping will be easy to see 99999 tab I'm going to set up that account set up the account as an expense account the name is going to be 99999 and so I'm going to say okay expense account looks good we're going to say save it and close it and so when I record this it's going to shuffle it up to 1231.23 in order by date so I'll say okay if I check that out on my balance sheet let's go to my balance sheet as of the end of last year 23 and double click on the checking account we're going to say there it is there's the 555 so on closing that out if I go to my income statement profit and loss and I look at the prior year 010123 to 1231.23 then we're going to have it in this account the 999 there's the 555 and that decreased the net income amount so let's imagine we did our taxes and whatnot and we used this 24987.24 in our taxes and whatnot that's a final number I don't want to go back and fix that number I don't want to change it but I've realized now that this account right here that check was entered in error it was entered twice or it never cleared or something like that and we're never going to end up paying it I have to get rid of it it's wrong in some way well then the first thing we would think about you could double click on it here and double click on it and say well maybe I should delete the check but again you want to be very careful of deleting the check because that's going to mess up the prior year thing right it's so I don't want to just delete it and I have to do something with it because it's going to be showing up in my in my bank reconciliation as unclear so this will become apparent when I go to my banking and I go to reconcile we'll talk about bank reconciliation later but if I reconcile the checking account let's say 70,000 here and continue you're going to see this amount which is never going to clear so at some point we're going to say okay we got to fix that so that's going to be the issue so it's a prior period adjustment so I can't just delete it so I'm going to go all right well what if I go back to my register I usually do this from the register and I go to let's see the my is my register yeah there it is so I'm going to go up and find it it's on 12 of last year December of the prior year so I'm just looking at the dates here to get to the prior year transactions so there it is I'm the five five there it is so I could just void this transaction so one way that you could you could void it I can right click and say I need to void the check so if I void the check that's different than deleting the check it should help me out and show an audit trail so I'm going to void it but notice it's something in a prior period so I'm going to say void it gives me a nice little void sign right here which is nice to finalize the transaction I have to hit tab or enter to get off the transaction so I'll say enter you have changed the transaction do you want to record your changes I'm going to say yes then it gives me this nice little memo it says to maintain the accuracy of your financial reports and balance the the accounts effects by the check QuickBooks can create a journal entry to the earlier period and a reversing journal entry in the current period would you like QuickBooks to void the check and enter the appropriate journal entries for you so notice it's QuickBooks has recognized look this is a transaction that happened in the past if I just void it straight out it's kind of like deleting it but it's a little bit better because it gives me the audit trail and so on so it's better than deleting it generally but again it's going to mess up the prior year's net income we recognize that so do you want us then to enter the transactions to kind of fix it what will that do what will we expect it to do it'll void this check to show it as voided but then it's going to enter it back in the system with a journal entry as of 2023 so that it doesn't throw off the net income and then it'll enter another journal entry as of 2024 the current time period so we can make the reversal in the current time period let's see if that makes sense so I'm going to say yes go ahead and do this now this would only be something that becomes a big problem if it was a prior period adjustment if you're in the same year or the same month you could have a month by month similar issue if you close out a month or a quarter but certainly for small businesses it'll be a year by year problem because you don't want to double record an expense between it'll be a timing difference a timing problem okay so if I go down and I look at it so now this one has been voided so if I double click on it so now it's a voided check which is nice for my audit trail now and if I go down here it's been entered again so it's been entered with a journal entry so I voided it and then it put it back in the system debiting this account again so it doesn't that doesn't throw me off it didn't make any actual change you might say well what did it do it just it just knold itself out avoiding it and then putting it back in but if I go all the way down here to the bottom it put it back in here again as of the current year the current date was 121524 so if I double click on this it put it in there with a journal entry so closing this back out so let's see what that the net result is if I go to my if I go to my balance sheet and double click on the let's do this as of 123124 double click on the check-in account change the first date from 010123 so 23 all the way to 24 let's make it 123123 so that'll be easy to find so here it is so right it was it was going down before but we voided the check so the check got voided but then they put it back in with a journal entry and and then they took it back out again with the journal entry at the end of the time frame that's not as important to do that double kind of thing on the balance sheet because the balance sheet is as of a point in time they're doing this on the balance sheet in order really to fix the income statement so if I go to the income statement or profit and loss let's see what happened here so we're as of the prior year here so if I go back into this account double clicking on it notice they voided it but then they put it back in place so nothing really they didn't really change anything at the end of the day if I close this back out I still I think that's this that should be the same number 2498724 should remain the same and that's good because I finalized prior year I don't want to adjust it I don't want to make any problems or mess it up if I go into the current year 01012324 to 123124 and go down to that account you can see I have a negative number here so it reversed it in the current period with a journal entry so that's going to be important to kind of understand because you got to realize that if something is especially if something's hitting the income statement in a prior period you got to be very careful with deleting things you have the capacity to delete things but if especially if you're deleting things in the prior period you could end up double recording things in the current period it'll mess things up because this prior if I go back from 010123 to 123123 this 24987 is connected to like the balance sheet we'll talk more about this when we get to the financial statements as of 123123 so so you have it down here right here the net in 2498724 is the profit 2498724 that's the same on the balance sheet so they're kind of connected because the double entry accounting system kind of ties together so if you mess up the prior period you're going to kind of mess things up moving forward if you're a small business and you do a schedule C business you might not really recognize that because you're only looking at the income statement when you do your taxes for example but again you still might be double recording things and if you're working with larger businesses that have you know that are rolling over the net income from year to year your retained earnings is going to get messed up so we'll talk more about that in the future but just you got to be careful when you're deleting things just be careful when you're deleting things and when you're voiding the check that's one way that you could see the void of check also just realize when you do the bank reconciliation you might say well what's going to happen with the bank reconciliation now with that 555 that was outstanding that we now deleted and put back into the system so let's go back to there where's the bank bank I'm going to say reconcile and continue so now we've got we've got it all nets out so to look at it it checked it off for us automatically but everything nets out right because the check now is voided so that so that it's going to go away and then we have the two journal entries that cancel each other out we have a check and a journal entry so it kind of makes the reconciliation a bit more confusing when you do this because you got to realize that these are being checked off and they're not going to affect your bank reconciliation because they all net each other off so you have to be careful when you reconcile as well but that's how you that's how you can kind of clear those those amounts that you'll probably be detecting when you do the bank reconciliation as the items that have not cleared for a long period of time at some point you're going to say that usually is the detection to say okay something's wrong here and check check that out that's the general process