 For example, if it were a job cost system and they're entering this whenever they do their billing, which happens every two weeks or something like that, we don't wanna say, okay, we're just gonna pull that, we're gonna mess up your whole timing system so that we can pull that before the cutoff date. Instead, what we wanna do is pull over this whole transaction to February with a journal entry and adjusting journal entry and then make the financial statements correct as of the cutoff date and then we'll reverse it with a reversing entry so we don't mess up the accounting department. So that's gonna be the concept here. Now this is a more complex adjusting entry and reversing entry. So sometimes it's useful to actually think about this with an Excel worksheet just to think about, let's think about what the journal entry is so that I can enter this into the system. So if I have an invoice and I'm gonna try to make a journal entry, what's that journal entry gonna look like? So let's just pull up Excel so we can think about it. I'm gonna go to the triangle, right click and format this thing and go to currency, bracketed numbers, no dollar sign, we'll keep the decimals. Okay, so I'm holding control and scrolling up. I'm gonna do this with debits and credits because now we have a fairly complex journal entry and debits and credits are easier to see but I'll also explain it in terms of increases and decreases. So what happens with this invoice that we're gonna have to record in journal entry format in our adjusting entry? Well, we know accounts receivable, AR, I'm just gonna abbreviate goes up by the full amount. Let's keep that till the end. We know that sales goes up or revenue is going up by the amount that we charged 500. So I'm gonna put that as a credit with a negative that's how I'm gonna represent credits with a negative. I'm gonna make the whole thing bolded to and so that's a credit. And then we know that sales tax payable is gonna be 5% we're saying. So whatever we charge, it's gonna be this times 0.05, there's the $25 and the accounts receivable then is the plug, the negative sum of that. So we're gonna be collecting or we're charging 525, sales is 500 plus the sales tax. Then we know that cost of goods sold, cost of goods sold is going up by 400 and inventory is going down by 400. So there's the transaction. There's actually a lot going on with it. There's also some more issues involved with this because I have to think about the sub ledgers in particular accounts receivable and the inventory account have sub ledgers. So accounts receivable, the sub ledger is for Anderson. Now QuickBooks won't let me post something to the receivable without creating a customer, which is usually good, but when you do the adjusting entries it's kind of bad because I don't wanna hit the sub ledger, I don't wanna mess up the sub ledgers. I wanna enter it as a adjusting entry and then a reversing entry. So one way we might do that, there's two kind of approaches. You might make another accounts receivable account, possibly making it as just simply a other current asset account so that you can then show your adjusting entry in that account, but that's not perfect because it's gonna look a little bit ugly on the financial statements because it won't be in the same account and you're gonna have to use another account type in order to avoid the sub ledger. The other thing you can do is create, and this is what we will do, a customer that is designed just for adjusting entries like customer ZZZ is what I'm gonna call it so that it's on the bottom of their customer list and hopefully doesn't mess anything up. And then the inventory also has a sub ledger which will be thrown off if we report something to it, but we should be okay with that one because it's not gonna, because we'll reverse it. So it doesn't force us to use the sub ledger account. It doesn't force us to use an inventory item in other words in the same way that the accounts receivable does. So that's actually good in this case because it doesn't force me to mess up the sub ledger or do anything funny to it when I do the adjusting entry. Sales tax is another one where you might be concerned about it because there's a sub ledger for the sales tax because we're using the widget to pay off the sales tax liability. But I believe we're okay with the sales tax. If you're concerned with that sales tax account, again, you might make another account called sales tax payable adjusting entry or something so that you don't actually post something to the sales tax account itself. But I think we're okay with that. So I think I'm gonna try to post to the sales tax payable account itself this time and we should be okay. If you're concerned with that, you can make another account. So let's take a look at that in practice. So I'm gonna make an adjusting entry. Now, last time when I did the adjusting entry, I went to the register to do it, but this one's too complex to do that. There's not just two accounts affected, there's too much going on. So I have to use in my opinion, it's easier to use just debits and credits, just enter a journal entry. So I'm gonna go back to the first tab and just enter a journal entry and I'm gonna go to the plus button, journal entry and I'm gonna reconstruct this thing that I just made 228 as of the cutoff date, 228. And then accounts receivable. So accounts receivable is gonna go up and I'm gonna make it go up by the 525, the 525. And now I'm gonna not put a name here just so you can see the problem. It won't let me record it, I'm almost positive. And so then the next one is gonna be the sales. So I'm gonna sales of product. So there it is, that's gonna be for 500. I wanna put in the description every time ADJ entry. Let's do a capital ADJ entry. I'm gonna copy that. Boom, boom, boom, boom, boom, boom. And then this is gonna be, I'm gonna put it to California department. This is the one I'm kind of a little bit dubious about putting it to that account. But I don't think it really will cause us a problem as it would in the accounts receivable or accounts payable. So I'm gonna keep that and then cost of goods sold. Cost of goods sold. Why does it have a number one one there? I'm just gonna go cost of goods sold. So this is gonna be 400. Okay, and then the other side goes to inventory. I'm very skeptical posting things to inventory in general, but here I'm okay with it because I'm gonna, I know I'm gonna do a reversing entry. So I know this is gonna throw me off from my sub ledger, but that's okay. Then I'm just gonna reverse it. Okay, so I don't think it's gonna let me record it because of this item here. Let's just show that just to show you. It says, when you use accounts receivable, you must choose a customer. Now I could put Anderson over here because that's who we sold to. It will let me record it. But then when I go to the detail for Anderson, let me show you if I right click and I add, I duplicate this thing and I go down to the cut the sale. I'm gonna close this out if I have it in another tab. I go down to the sales and I go into my customers for Mr. Anderson. Then I'm gonna have this journal entry in here. I don't want a journal entry in here. That doesn't look right. I should only have invoices, estimates, payment forms and sales receipts in the customer detail, not journal entries. So no matter what I do, even if I reverse it, it's gonna look funny and on the bookkeeping side of things and they'll be mad at me. And I hate when they're mad at me for that kind of thing. So I'm not gonna do that. What I'm gonna do is I'm gonna make another one that I'm gonna sneak this thing down at the bottom so they don't see it and then they won't be mad at me. So I'm just gonna make a customer of ZZZZ and then I'm gonna put that over here and then save it. So now it'll still make this messed up customer but hopefully it'll be at the bottom of the ledger and they'll totally never even see it. It won't bother anybody at all. That's my goal. And then when we reverse it, it'll reverse out down there. Let me show you what I mean. Let's save it and close it.