 QuickBooks Online 2023, Adjusting Entry, Depreciation. 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 Online sample company. If you want the two open at the same time, we suggest 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. Incognito window, or another browser you can open Incognito. If using Google Chrome by selecting the three dots in the browser, Incognito window, then type in to the search engine, QuickBooks Online Test Drive. We're using the sample company to compare the accounting view, the view that the Get Great Guitars file is in, and the business view, the one the sample company is in. You can change between the two by going to the cog up top switch the view down below. We're going to be duplicating tabs to put reports in by right-clicking the tab up top so we can duplicate it. By right-clicking the tab up top so we can duplicate it and then go back to the middle tab. We're going to the reports on the left and then the balance sheet report. By the way, if we're in the business view, the reports are in the business overview and reports. Back to the accounting view, back to the tab to the right. Another reports tab, this time the other favorite, the profit and the loss, the P and the L, the income statement. Hamburger needs to go away, get out of my face, you're making me hungry. And we're going to change the range 010123 to 022823 and make it from total only to the months. So we can run it side by side, Jan, Feb, Tote, tab to the middle, close the burger. There's the burger in again 010123 to 022823 hitting the dropdown to put it to the month by month. Run it again to refresh it. That's the set of process we do every time. We're focusing in on our period end, that being February 28th, the cutoff date, adjusting entries. We're now focused on the insurance, which will be similar in concept. I'm sorry, we're not focused on insurance. We're focused on the fixed assets, which will be similar in concept to the prepaid insurance we did before. The fixed assets are a little bit more extreme of an example. And they also have that added twist related to it. That being the accumulated depreciation and the depreciation expense and added account, which we can call a contra asset account, an asset account that actually decreases the asset balance. Okay, so there's a couple of things that we want to go over just to think about how we're going to structure the fixed assets from the accounting bookkeeping side of things and work with our tax professionals at the end of the year. Because there's going to be tax consequences typically with the fixed assets. And we're basically going to be forced to do some kind of a cruel thing and have some kind of depreciation method. And usually because we have to have a tax consequence, it's easiest to use the tax software as a subsidiary schedule to help support the data input we're putting in place. So the first thing we want to do is when we set up our QuickBooks file, we talked a little bit about this when we set up the QuickBooks file. But the general rule, remember, if I go to the tab to the left and I scroll down to our chart of accounts, which is in the accounting view and then the chart of accounts, which if you're in the business view, by the way, is in the bookkeeping and then the chart of accounts. And we said that the general rule for the chart of accounts, if you're starting a new business, is to accept what QuickBooks has given you with the accounts. Most of the accounts you're going to be dealing with when adding data is usually the expense accounts. Those are the ones with the longest category. And if there's already an account in place, then we want to typically use that account. If there's not an account in place, but a similar account with a similar name, then maybe we want to use that account and just edit it or adjust it. If there's an account that's a subledger or something and we don't want it to be, then we could just edit it instead of having two accounts that are the same or similar in nature or in name and nature because then it would be likely that we'll post something to both accounts. And if there's no account at all that we would like, then we add the account. Now there was a bit of an exception when we talked about the fixed assets, I would think, because when you first start up the fixed asset accounts, what you want to do is have it line up to the subledger. Most of the time our subledgers are within the accounting software. So for example, a type of subledger in my mind would be an accounts receivable subledger report breaking out the information by customer. Accounts payable subledger report breaking out the information by vendor. Inventory subledger breaking out the information by item. For the depreciable assets, fixed assets, we want a subledger breaking out by the depreciable assets, having a list of depreciable assets and the related accumulated depreciation. That's a quite comprehensive list as time passes. And the subledger, however, is not typically within QuickBooks because you're going to have to put it into the tax software and so you might as well use the tax software generally to create the subledger and calculate the depreciation which most tax software can do on a cash based system, I'm sorry, on a tax based system or a bookkeeping based system. So if that's the case then what you want to do is talk to your accountant when you first set up your file and say, what are the categories that are in the tax software that I'm going to use as my subledger for calculating depreciation? And so in this case, this is from a software called LASERT which is actually software owned by Intuit and they've got furniture and fixture as a category and machinery and equipment and then there'd be vehicles, I believe, or automobiles and then building and so on would be the categories. And then I would try to set up my categories over here for the fixed assets to be the same would be the general idea. So the fixed assets, we did this a little bit last time. We tried to line up our fixed asset categories to be similar to our subledger accounts so now we've got furniture and fixture, machinery and equipment. When you first start off with QuickBooks accounts they give you all these subledger kind of setup with the fixed assets which I don't think is the ideal way oftentimes for most companies to be doing it because you want to be in agreement with the subledger. So that's the first thing. Notice that we set up an account and accumulated depreciation account as a subsidiary account related to each major category that's going to be showing on our chart of accounts over here in our subledger that's coming from the tax software that will also help us to organize this. Every time I leave it takes me back down to the bottom which is annoying. So just getting those categories right that's one thing to keep in mind and so the next thing to keep in mind is that the activity that happens in our fixed asset type of accounts is usually quite minimal. So in other words I've entered two months of data input. If I went into like just the February cash account this is just the February transaction detail. A ton of information in here in comparison to the fixed asset account just for one month. If I go into like the accounts receivable there's still a significant amount of activity because you would think something would be going into the accounts receivable each day if you make sales on account. But when I go into the fixed asset accounts down here we're going to have very minimal activity because buying equipment is not something we do all the time and this would possibly be more than usual in the first month because in the first month of operations that's when you would buy the equipment more often. So that means that what you need to do on the sub ledger accounts over here everything that you bought last year and in prior years is still relevant in current years you're still going to have depreciation related to it but you don't have to give your accountant more information about the stuff that you already have on hand. The forklift that we had last year is still there this year if it is they already have that information. What we need to give the tax preparer so they can populate it in the sub ledger is going to be all the new stuff that we have which there shouldn't be a lot of activity so you'd have to give them just the general ledger like this for example and then you might also give them the actual documentation for what you purchased because for example if this $16,000 item was multiple computers or something like that or multiple pieces of furniture then we would want to put it on the books not as one lump sum of just saying furniture we would want to put it on the books like this something like this sofas chairs or something like this something that is as decipherable as possible not because it'll cause a problem in the current year of purchase it won't but it will cause a problem when you try to dispose of something as time passes you might sell some of the stuff you might dispose of some of the stuff in order to clean up the sub ledger which is going to be on the tax return side of things we're going to have to identify the actual thing that we disposed of and if you've got large chunks of generically categorized items it's going to be difficult to do that and the transactions to dispose of things are quite complex because there might be a bookkeeping side a tax side and so on so you want to make it as easy as possible on the disposal side of things to record it as you can so those are the general rules now the tax software you're going to have to record the tax software it's going to have to do depreciation on a tax based system for a small business you might just record your books on a cash based system or a tax based system as well to make it easy but the software usually can also do a bookkeeping system a book based system so instead of using tax depreciation which isn't ideal for bookkeeping you might use a straight line method or just a standard double declining method and the tax software often has the capacity to run both schedules if your tax preparer knows how to put that information into the system so whatever you want to do you want to make sure you're working with someone that understands what they're doing in terms of how they're going to put the items in and how they're going to be depreciating and whether or not you're going to use a tax basis or a book basis for your personal bookkeeping and how you're going to enter the adjusting entries so then of course we can use the depreciation schedules to enter our adjusting entries so this for example you got the furniture and fixture broken out by item the total of the whole category adds up to 98,000 that should tie out to our category total here of 98,000 and then the prior year depreciation was 7,500 prior year depreciation 7,500 and then the machinery and equipment category is 5,000 which is the 5,000 here and we don't have anything yet for the depreciation because we purchased these in the current year the current year depreciation is 14,001 now if you were going to record depreciation just on a yearly basis for a small business you'd have an adjusting entry of 14,001 that they can provide you with on a yearly basis from the depreciation schedules and we can do the adjusting entry we're going to be doing it for two months right now because it's a February statement so I'm going to take the yearly information and say this is 1,4001 divided by 12 months that would be the monthly amount times 2 so I'm going to say my adjustment for the two month time period that has passed I'm going to say it's 2,333,50 so let's go back on over and so note you might say if I go back to my income statement hey I should break that out and record depreciation for January and February and I could do that I can make two journal entries to say I had January depreciation and February depreciation but I'm really focused on the year to date of February at this point in time and if you were doing it at the end of the year you'd be trying to focus on having your financial statements correct from a normal adjusting entry process as of the period ended December 31 so I'm just going to do one entry to have our financial statements correct as of the year to date of February in essence so I'm going to put it in here February for the two months in our practice problem if you were going to do this on a monthly basis you could do that you could try to project you'd have to work with your accountant so that you can update the depreciation schedules and try to put an adjusting entry in there on a monthly basis the easier thing to do is just do it on a yearly basis okay let's go back to the first tab here and we're going to go down to do an adjusting entry so we could do just a journal entry with the plus button and enter a journal I can go down here and use the register which is what we're going to do so I'm going to use the register I'm going to have to use the balance sheet account because the expense accounts don't have a register related to them so I'm going to go into this register account and then I'm going to hit the drop down make a journal entry cut off date 022823 and then I'm just going to call it an ADGA entry and so it gets a little bit confusing with the contra asset accounts as to whether it should be an increase or decrease because it's a contra asset account as we can see over here it's a negative amount in here so from a debit and credit standpoint it would be an increase because it's going to be an increase to a contra asset account but the system sometimes in the film accounting system see it as it decrease because it's an asset account and it's decrease in the asset accounts so I'm going to assume it's an increase if it's the other way I'll see it and I'll fix it I'm going to say 2333.5 and then the other side is going to go to depreciation expense now notice you have some options here with depreciation expense you could set up one depreciation expense account you can make another depreciation account for each category I tend the simplest thing to do is have one depreciation account and I often will do that a lot of times if it's the easiest thing to do often times I like to break out a separate accumulated depreciation per category because those are permanent accounts as opposed to the depreciation account being temporary income statement account which will roll into the equity section at the end of the period so I'm just going to pick that depreciation account and I'm going to save it and let's see what happens what happens I'm going to go to the balance shape to check that out run it up top and scroll down so now I have and I put it into machinery and equipment I put it into the wrong account dang it let's fix it well first of all was it going the right way was it going the right way it's actually not see it's increasing see that's what I'm talking about so I have to do it the other way so I'm going to go back into it it's a journal entry now so I'm going to go into the journal entry and let's adjust it so I need it to go the other way which is going to be pick up the proper category this time to try to do it correctly if you could do it correctly that would be nice so I'm picking up this number this time so this is 833 divided by 12 times 2 and so that is 13883 13883 so I'm going to go ok this is going to be 138.83 and 138.83 and I'm also going to put the adj entry down here too save it and close it alright let's check it out again I'm going to go back and so now we've got the 5000 minus the 13883 so now it's properly decreasing to get it to the 486.117 so I think that is correct ok so now let's do the other one I'm going to go into this one now and go back to the register and see if we can do that properly so I'm going to go back I'm going to go back into my chart of accounts accounting and then chart of accounts we're going to scroll on down and we're going this time into furniture and fixture that's the one I should have gone in last time and I'm going to add another journal entry we're going to add another one this is 022823 and this is going to be ad adj entry and this time it's going to be a decrease so we're going to do it as a decrease because that's a contra asset account and now I'm going to take the current year depreciation that's for a full year 14001 divided by 12 times 2 so that's where we get the 2333.5 ok so let's do that I'm going to go back on over and I'm going to do a decrease of 2333.5 and the other side is going to go to depreciation so they're both going to the expense account of depreciation and let's say save it ok so now we're at the total 98335 I think that's good so let's go to the balance sheet and see what happens what happens so down below now we've got the 98000 minus the 9833.5 gets us to the book value and if I go to the balance sheet or the income statement the profit and loss both of those amounts are going into one depreciation account the depreciation account not being a cashed basis account it's a cruel basis account allocating the cost of fixed assets that we have purchased not just in the current year but in the prior years that are depreciating them and attempt to expense the cost in the same time frame period that we're using them in so it's decreasing the net income so then if I go back to the first tab just to get another look at the way this is structured we've got the fixed assets this is what we purchased them for and then we're also showing with the added contra account here how much has been allocated how much has been expensed the difference between the two is going to be the book value so that may not coincide directly with the fair value the fair market value we're basically allocating the cost it's an estimate that's why we use this contra asset account that's why we don't use the contra asset account in something like prepaid insurance because it's not an estimate up here it's based on you know what happened and so it's similar thing with the inventory right it's not really an estimate the actual physical units of inventory went down whereas here the physical units of buildings and furniture did not go down we just allocated the cost estimate we can to try to match the period that we consumed the stuff to the period that it was used now note that for tax basis purposes the depreciation is all messed up because they put in laws that are going to try to stimulate the economy or this and that so the tax depreciation schedules don't have the same kind of accounting justification for proper financial statement reporting but small businesses might want to just be on a tax-based system because it's easy right it just depends what you want to do because otherwise you have to have two depreciation schedules so that's going to be that's going to be that and then the furniture and equipment so if I set it up this way I can collapse the whole thing here's my fixed assets in total I can collapse each category here's like the book value of each fixed asset or I can open up each category to see the cost and the amount that has been depreciated over its useful life thus far okay so that the fixed assets are one of those areas where you want to get aligned up with your with your accountant your tax preparer your CPA and come up with a system that is easy for the recording of the fixed assets it's also one of those areas that if you're automating your data input using bank feeds you might want to set up some dollar structures so that if you make purchases that are over a certain dollar amount it will at least notify you or possibly record automatically to a fixed asset account as opposed to an expense account so that you can pick this kind of issue up because it's going to be a deviation from a cash based system therefore a deviation from the simple automation of trying to just use bank feeds to create your financial statements okay that said let's open up our reports right click duplicate also note that this is a permanent difference therefore no reversing entry we're not going to do a reversing entry here it's a permanent allocation of the cost going down to the reports on the left hand side closing up the buggy we're going to type in journal that's not journal journal and then let's take a look at it as of 022823 022823 and there it 022823 there it is and then I'm going to sort by the journal entry customizing filtering sorting by transaction type journal entry run it there's what we've done thus far these two are not adjusting entries these are down below there's our depreciation adjusting entries we're not going to do reversing entries for them because they are permanent differences and these are the reversing entries one day later that we've done thus far so it's good to keep in your mind which things are reversing entries which things are not reversing entries how can we set up our process as easily as possible from the accounting standpoint let's also look at our trial balance trial balance and we'll then run this from 010123 to 033123 and look at the month by month breakout run it here's our six legs over here like the avatar animals have six legs we're standing on them and if you're standing on the same six legs then that's good pretty solid footing with those two extra feet on the ground so if not we'll run a journal report at the end of the period hopefully to drill down on any differences