 QuickBooks Online 2023, adjusting entry, loan payable, short-term and long-term portions. Get ready to start moving on up with QuickBooks Online 2023. Here we are in our Get Great Guitars practice fire we set 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, you can use the incognito window. 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. Or another browser you can open incognito if using Google Chrome by selecting the three dots in the browser and incognito type into the search engine QuickBooks Online Test Drive. We're going to be 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. If you want to toggle between the two views, go to the cog up top, change the view down below. We're going to duplicate some tabs to put reports in like we do every time right click in the tab, duplicate it right click in the tab and then duplicating it. We're going to go back to the middle duplicated tab to the reports on the left open up one of the favorites that being the balance sheet. If you're in the business view, by the way, the reports are in the business overview on the left hand side and then the reports back to the accounting view. We're going to go to the tab to the right. We're going to go down to the reports on the left and let's open up the profit and loss this time. The other favorite financial close up the hamburger and change the range from 010123 to let's go to 022823 and then let's see it month by month side by side. Run it and then there it is January February and the total year to date tab to the middle closing the hamburger scrolling up same change to that range. We're going to go from 010123 to 022823 change it to the months on the drop down run it and there we have January and February. Our cutoff date is February so Feb 28 is the cutoff date. We're doing the adjusting entries which are all entered as of the cutoff making the financial statements correct to the best we can according to the accounting method that we're using in our case and a cruel method as of that date. We're now going to be working down here in the liability area under the loan payables. We got two loans on the books as sub accounts under the parent account of the loan payable. So let's go over some issues with regards to recording transactions for loans payable keeping in mind the bookkeeping perspective separate from the adjusting entry perspective bookkeeping perspective. We want to make things as easy and automated as possible from the adjusting entry perspective we want to make the financial statements correct as of the cutoff date. So we can have it for external reporting purposes and for tax preparation. So one issue we have is that for external reporting we often just want one account called loan payable or short term and long term loan payable account perhaps. And for internal reporting purposes we often want a separate account for each loan because that helps us to tie out to say the amortization table. So we can deal with that possibly with this kind of setup having a parent account loan payable and then list out the name of the actual lender as well as possibly the last four digits of the loan number for the subsidiary accounts of the loan. So that's one issue. Another issue can be just simply with putting the loan on the books because that's not a transaction that's going to be happening all the time. Once the loan is on the books we can expect that the transactions record interest or record the payments will be something that's repetitive. But putting the load on the books is something that only happens when we finance the company. Sometimes it's easy because we might just get cash and then the other side goes to loan payable. We would see that coming through the bank statement. We can record it fairly easily in that case but sometimes it's a little bit more difficult such as when we finance equipment for example. So in that case you could record that transaction with a little bit more complex transaction or talk to your accountant of course who might help you to record it that first initial transaction before you start making the payments. Or you might even say hey look I'm going to save the equipment purchases and simply give that to my tax preparer or CPA at the end of the month or year so they can make the adjustment at that point in time. And when I start paying off the loan that's when I'm just going to make the loan account and I'm just going to make the payments to the loan and ask my accountant to make the necessary adjustments to record the equipment. As well as the interest and loan balance at that time. That's another method you can use and that coincides to the other issue here which is basically once the loan is on the books. Or once we start making the payments to the loan in any case. There's going to be three accounts affected instead of two complicating our ability to make automated automatic automated transactions with bank feeds for example and the breakout between the interest and principle will differ. So so then so that's going to be an issue as well because we can't just make the the transactions automatic so for example if I look at the amortization table over here for one loan. We can see that we have the payments are the same so that should help us to make the transactions automatic through the bank feeds possibly but the breakout of the interest and principle per payment will differ. So how do we deal with that well one way we can deal with that is we just get the amortization table and then we basically each payment break out the proper portion of interest and principle and we double check that the loan balance matches our loan balance. In our books that of course means that we're going to need an amortization table something that you're not always provided with when getting a loan something that you can create yourself or possibly once again ask your accounting firm to do that. And they can give you that that's one method that you can use that's what we're doing here or if you want to automate the transactions again you could say hey look. I'm going to depend on my CPA firm to fix the amortization at the end of the period and adjusting the loans to what they need to adjust them to. I'm just going to try to automate everything possibly with the bank feeds. So you might say hey look on the bookkeeping side I'm going to record everything as a payment that's going to go and decrease the loan balance account. And at the end of the year you're going to go to your CPA firm and say hey look these are my loan documents these are the purchases I made and finance the purchases for my equipment. And I would like you to put the equipment on the books for taxes do the depreciation schedules make the amortization schedules make the journal entry that's necessary in order to record the equipment and the loan and then break out the interest and principle. And given the fact that the tax preparer depending on how much detail they're doing anyways on the bookkeeping side at the end of the year they might be doing a lot of that work anyways if they're kind of double checking all the loans and stuff depending on how much stuff they're doing. So that that could be a method that they could work as well and that allows you to automate everything on a cash basis system possibly scale up and have a bookkeeper that can kind of do that period and type of stuff. But of course you need to be working with a team with a CPA firm or accounting firm that can handle that. Those adjusting transactions at the end of the year not just someone that's going to going to just take whatever income statement you give them and just plug that into the tax return or something if you're planning on these adjusting entries. Okay so what we have here of course is is we have been following the amortization schedule. Okay so the next issue you have is breaking out the short term and long term portion of a loan because by definition a current liability is something that's going to be due within a year and the long term is something that's due after a year. So when you're thinking about a a loan if they're paid in installments we're going to have a short term portion and a long term portion. So once again we from the bookkeeping side of things are not going to want to break each individual loan such as this loan here into a short term and long term portion each time we make a payment. Because then we would have to figure out what the short term and long term portion is every time we make a payment that's way too tedious. So that for sure is something that we probably want to do periodically for external reporting purposes possibly at the end of the month or year. Now this breakout might not be something that's absolutely necessary for small businesses because you might just have a schedule C that you're doing for taxes which is basically just the income statement. So you might not need the balance sheet or external reporting purposes. It is useful to break out for internal evaluation from time to time as well because you want to be seeing if if you can pay off your current liabilities with the current assets using your ratio analysis. So that's what we're going to do here. We're going to break out the short term and long term portion. And this is not really a classic adjusting entry because although we do it at the end of the period to make things right periodically and make it easy for the bookkeeper to do what the bookkeeping does and the adjustments to be made at the end of the period. It doesn't have an income statement component. There's not a timing difference. There's just a difference between short term and long term on the balance sheet. All right. So let's do it. How are we going to do it then if I look at my amortization schedule. This is where we stand as of this point in time. I'm actually going to move move this whole thing to the right if I can just going to try to move this over here. So I have a little bit of room. Give me a little bit of room. Tables are crowding me. I don't like being crowded like that. All right. So now we're going to say say if this is both short term and long term the short term portion is. The next 12 payments that we're going to be making. Now you might think you could just do this. You might say well why don't I just say the short term portion is this times 12. Right. And then the long term portion is going to be wherever I'm here now minus this. And that doesn't quite work because the payments you're making take into consideration interest and interest is something that we have not yet incurred. We know we're going to pay it in the future. We've already obligated ourselves to pay it. But that would be like paying rent. That would be like saying well I signed a contract to pay you know a thousand you know a hundred thousand of rent you know next year. And so I'm just going to record it today as a liability. Well no you may not be able to get out of the contract to pay it next year but you still haven't incurred the rent because you haven't used the office building yet. You know so that's in the same thing as here. You haven't incurred the interest because you haven't used the money yet to help generate revenue. So the way we have to do it then is say that the long term portion is going to be equal to let's say the sum. Equal to the sum of let's say we're going to start here and go 1 2 3 4 5 6 7 8 9 10 11 12 12 periods down. I think that's right and then we're going to say and then we're going to say that the long term portion is this minus this or in other words that number should match. If I go if I go 1 2 3 4 5 6 7 8 9 10 11 1 2 3 4 5 6 7 8 9 10 11 12 if I make that yellow then there's the ending point right there. That's where we will be after a month of making the payments because the difference between the two this minus this is going to be the interest that we have to pay. So that's going to be just you know the money that's not going to be taking down the loan that's just the interest that we're going to be paying. Okay so that's the idea so this is going to be short term and long term I'm going to say so that's that's going to be our adjusting entry. So so I have everything in current the short term portion so I've got to break out the long term portion so that's what we're going to do. I'm going to go back on over here and I'm going to say for this particular loan I need a long I need a long term portion of the loan which is going to be long term. So I need to go to my first tab. Let's go to our chart of accounts which is under accounting. We're going to go to the chart of accounts if you're in the business view by the way by the way it's under bookkeeping and the chart of accounts that's where it's located. Alright so and then in here I'm going to make another loan account and I might make a parent account and then another loan just to show you if we had if we had multiple loans but we only need to break out like one of them. So I'm going to say new I'm going to say this is going to be a liability but it's going to be a long term. It's not current. We're going to say this is going to be long term liability. They've got one here long term business loan. So I'll I'll use that as the parent account. I might want to just call it loan payable but I'll use that as the parent account and then I'll call this the the loan. This is this was this was the chase loan long term portion. Let's say or something like that. I'll save it. So if I scroll down here I'm going to say alright there's my so there's the chase loan short term and then we've got our long term loans and there's our chase loan long term. I probably should have put the last four digits of the loan number to match the other loans so we can see that these two are tied together. Right. But the question that the idea here is that this is the individual loan that ties out to that loan up top. I might want to put a lot. Let's keep it. I'll keep it at that as the name long term portion of the business loan loan. I mean let's let's change it. I'm going to say edit. Let's say this is going to be this is going to be loan payable loan payable long term or portion. I'd rather do that long but loan is spelled this way. You idiot. Okay. No need. There's no need for there's that was uncalled for. Alright so now now that we have that we could then go into either of these because both of them have a register. So we're going to enter a journal entry which we could do with this or we can just go right into the register. So I'm going to go into the register with a long term loan payable. I'm going to enter a journal entry as of 022823 the cutoff date and the memos is going to be to Brent is going to be the say a DJ entry. And this one is going to increase by that 56769 right so it's going to be 56769.59. And the other side is going to go to the loan payable to the chase account for the short term loan payable. So there we have it and that should take the short term amount down to 1310854. So let's save it and close it and see if that is indeed what happens going back to the balance sheet to check it run it to refresh it and then scroll it down it. And then we're going to go down to the liability section where we've got now see there's the 1310854. That's the short term portion boom. And then if I click on it we can see the activity we can see what's been done what we just did. What did you do. This is what I did. There it is. Put the adjusting entry down here too so we can see it on both sides of the transaction close it back up scrolling up to the top the other side is going to be into the long term portion long term business loan. I thought I changed the name so now I've got long term liabilities long term business loan. I don't like that. So if I'm in the chart of accounts here I could have sworn I changed this to loan payable like I changed the name did I not did I not. Let's hit the drop down and edit it again because I could have swore. So I called it other current. I want to call it loan payable long term portion portion something like that. So it kind of mirrors what I had up top you know what I mean you know what I'm talking about. Let's go back on over and then run it again. It's not a big deal or anything but that's I'm just saying that's how I want it to look. So I'm going to go down. So we got loan payable I should put maybe short term here and then loan payable loan payable long term portion and then chase loan. We only got one loan in that area because the other loan we had up here only has a short term portion to it. So maybe that's not the best way to name it but that's the general idea right we've got loan payable up top. This is going to be the short term which I can collapse and you don't really need to put short term because it's under other current liabilities already it's in the short term area. And then you've got and then you can expand it for internal reporting purposes and then down here you've got the loan payable for the long term which again long term is kind of redundant. I could have just put loan payable again although it wouldn't let me put two loan payables with the same exact name possibly. But the point is I can expand this and then I can check out and double check this to my amortization table per loan. Now clearly we only have one loan down here which is long term so maybe you could have just put that just simply into loan payable. But I think it's useful to have this idea of having the parent and then expanding it so that if you have other loans that have a short term and long term portion to it then you can use the same concept. Now the next presentation we're going to reverse this transaction because note that going forward after I make the next payment next month it'll throw off the short term and long term portion. So I don't want to have that internally. This is something I want to do on the adjusting end of things and then reverse it so that the accounting department can deal with just simply one account per loan. So that's what we'll do next time. Okay let's take a look at some of our reports going to the tab the right right click and duplicate it opening up the trial balance. The trustee T to the B reports on the left hand side and closing up the bookie and typing in trial balance trial balance and let's change the range from 010123 to 022823 drop down months and then run it. So this is where we stand on the trial balance. I won't open the journal reports this time. I'll open them possibly next time when we do the reversing entries. So this is where we stand at this point in time. If everything you have lines up to what we have we're on the same page. That's good. At the end of the adjusting entries we will run a journal report to help drill down on any differences any discrepancies.