 QuickBooks Online 2024, reversing entry related to accounts receivable, sales, revenue, or income. Get ready some coffee and relax because we can do bookkeeping on the shoreline with QuickBooks Online 2024. At least if you can get an internet connection by the shoreline. But anyways, here we go. First, a word from our sponsor. Yeah, actually we're sponsoring ourselves on this one because apparently the merchandisers, they don't want to be seen with us. But that's okay, whatever, because our merchandise is better than their stupid stuff anyways. Like our, trust me, I'm an accountant product line. Yeah, it's paramount that you let people know that you're an accountant. Because apparently we're among the only ones equipped with the number crunching skills to answer society's current deep complex and nuanced questions. If you would like a commercial free experience, consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com. Here we are in our gig rig guitars 2024 QuickBooks Online sample company file. We set up in a prior presentation, opening the major financial statement reports as done every time the reports on the left were in the favorites, right-clicking on that balance sheet so we can open a link in a new tab, right-clicking the profit and loss, also opening link in a new tab. The same thing done with the trustee trial balance, the good old TB, tapping to the right, closing the hamburger, changing the range in from 010124. Let's go to 033124 this time because we're doing a reversing entry in the following month after the cutoff. Selecting the drop-down to see this on a month-by-month breakout and run it, tapping to the right, same thing, closing the hamburger, changing the range, going from 010124 tab, 033124 tab, changing the rent to months and then refreshing the report, tapping to the right one more time, closing the hamburger and range changing it, going from 010124 tab, 033124 tab and selecting the drop-down for months, run it. Let's go back to the balance sheet. We've been working on the adjusting entries and now we're doing a reversing entry which is intimately linked to the adjusting entries, adjusting entries done at the end of the period, either a month or a year. Our cutoff date for the practice problem is February, so we're trying to make our books as correct as possible as of February according to the basis that we're on which is typically an accrual basis but could be a tax basis if you're trying to do your books and get them ready and lined up for taxes. We're looking at an accounts receivable type of transaction this time and this would be one that possibly you wouldn't have too much if you're a small business or something you might not need this kind of adjusting entry but it could be there for businesses in particular those that have a job cost kind of system. Let's give a recap with our trusty flow chart. This is a desktop flow chart we're using for online purposes just so we can look at the flow of the forms. If we have a type of business where we're invoicing a client then one way that might happen is in a job cost kind of system where possibly we have staff doing work for us say in a CPA firm or a law firm and we're going to have to collect their hours that they worked and bill out their hours which probably is only going to happen twice a month or possibly once a month. That means by the time we enter the invoice then it might be after the cutoff date even though we did the work before the cutoff date. So technically from an accrual standpoint we should be recording revenue at the point in time the work was done which is usually closest to the actual data input form of the invoice. That's why QuickBooks uses an invoice. In other words how can QuickBooks determine when the work was done? The only way QuickBooks can determine that is if you do some type of data input form into the system the form that's going to be closest to the date that the work is done is the invoice but that doesn't necessarily mean that that is entered on the same date as the work was done which it often will not be if you have this kind of job cost kind of system. So technically then what we should do is recognize the revenue before the cutoff date for those invoices that were entered after the cutoff date but for which the work was done before the cutoff date. So that's going to be the idea here we entered the adjusting entry last time and to see that we basically entered an invoice in March so let's go to March here. We could see this invoice. We did it with inventory because that's going to complicate the journal entry more although it might be more common in a job cost system possibly where you don't have the inventory like a law firm or something like that so you can trim it back and make it easier not having to deal with possibly sales tax or inventory in that case. But here's the invoice this is not the adjusting entry this is the invoice that was entered after the cutoff date in March which we are imagining needed to be pulled back to before the cutoff date. If we look at that invoice here it is the sale of some a piece of inventory so the easiest way to do this you might think well why don't you just change the date here to something before the cutoff date and the general response to that would be well we don't normally want to do that in the adjusting department because whatever the accounting cycle is doing we want to keep online with the accounting cycle we don't want to start messing up the normal flow of the accounting cycle instead we want to add transactions to it to adjust and then reverse them if necessary so that we don't mess up the normal accounting cycle so if that's if they bill or whatever every two weeks or something and that's what they do I don't want to change the invoice so it looks funny when they're trying to look at their billing structure or something like that. So I'm going to say let's close this out and let's go back and so that recorded that invoice recorded then an increase to accounts receivable it recorded an increase as we can see to the revenue in March it recorded then a increase in the sales tax accounts the sales tax payable accounts in March and it recorded a decrease in inventory because we sold inventory and an increase in cost of goods sold so we then have to enter that transaction before the cutoff date not with an invoice but a journal entry so then we entered a journal entry here as of the cutoff so I wanted to bring that income into before the cutoff and we can see in these sales that we have sales receipt invoices and then this journal entry so we can clearly see oh yeah there's a journal entry that was input here that looks like an adjusting entry because it's as of the cutoff date as of the end of the time period and it is in a journal entry type of format so here's the actual journal entry in terms of debits and credits I would first basically try to type this one out in debit and credit format because we can't really get around debit and credits here because it's a longer journal entry and somewhat complex so we made this first and then we entered the journal entry so if I go into this one we could see the journal form and there it is on the debits and credits this is basically what it looks like in excel format so now we need to do a reversing entry to reverse it for the first day after the cutoff date why is that because if I don't do that then all of these accounts such as the revenue account will have recorded revenue two times so the whole point of this adjusting entry was to get it before the cutoff date so if I close this back out we could see we got it in there before before the cutoff date but if I bring us up to the next month then it will have been entered two times so we want to get it before the cutoff and then reverse it so that it won't mess things up at the second at the next month in that it would have been entered twice if that were the case so how do we do that well we can look at the journal entry let's go into that journal entry again and we can do the exact opposite of it now if I go into here this is this is my journal entry here and you can see that we constructed it basically in terms of debits on tops credits on bottom that's how you usually construct journal entries although we even deviated that from that format here by breaking the journal entry out into basically two components so it used to be in textbooks you would see this journal entry as a accounts receivable debit and then cost a good sold debit and then the sales sales tax and inventory credited possibly the inventory above because it's a larger dollar amount the sales tax however that's kind of ugly to look at because it's a lot easier to understand the journal entry if you look at it this way so I would continue that concept of saying hey look I'm not going to construct my journal entries debits on top and credits on the bottom just to make people happy because it because it's supposed to be some proper arbitrary rule I'm going to construct them in a way that I can understand them read them others can read them clearly so if I come back to it later I can I can more easily piece together what I did right so I'm going to I'm going to minimize this so how do you do that you're just going to repeat the whole thing I'm not going to try to put the debits on top and the credits on the bottom I'm just going to repeat the whole journal entry and then reverse it so here's the reverse in entry so this was a debit now it's going to be a credit right and then so a credit's on top not a problem here's going to be the debit or the credit now it's a debit that was a credit now it's a debit on the cost a good sold we had a debit now it's a credit and then the inventory was a a credit now it's a debit so note that's the way you I would suggest to construct say a reversing entry it's kind of like doing a credit memo if you've done a credit memo before which kind of reverses the sales transaction what I wouldn't do is try to memorize the credit memo transaction because it's weird in your mind everything is backwards what the easy thing to do is is think in your mind or actually write out the normal transaction and then reverse it entirely not trying to be fancy and reordering the accounts in your mind so that the debits are on top but rather just keeping the same order from top to bottom and just adjusting or reversing the debits and credits so this should look kind of funny to you of course because it's it's backwards right so accounts receivable is going down not because we paid off we got a payment on it but because we're reversing the sales the sales is going down that looks funny because sales almost never goes down it only goes up in the credit direction typically sales tax is going down which again is weird because normally it only goes down when you pay off the sales tax cost of goods sold is going down which is the opposite of what it normally does because it's an expense and expenses almost always just go up it's quite rare that an expense like cost to goods sold would go down and then we have the inventory which is going up not because we're purchasing something but because we're reversing it so that's how I would think about it and then we can go in here and say let's just do it I'm going to close so you can also you might want to screenshot this journal entry in practice or put it in a separate tab right I would pull this over in my other window and then open up another journal entry so I can just copy the same format of it and then reverse it also note that they do have a reverse a reverse button down here which I I haven't used all that often but that obviously might be an an easy way to go let's actually try that let's duplicate this and then I'm going to pull this over here and close this out and go back and say exit so let's try the reverse button boom and look at that whoo so so then it reversed it just perfectly and I and I and I did it and it even changed the date for me on on 3 1 so yeah that I like it movie B to the end so what did it do it credited the the accounts receivable note that we have to have a customer in the accounts receivable which I I named ZZZ because I do not want to mess up the internal documentation within the ledger over here in the sales area for the customer in Anderson was the actual person that this invoice was sold to I don't want to have something in here with journal entries in his books because that's going to mess up the communication between our bookkeeper and Anderson possibly they're gonna be like uh no the accountant did some funny journal entries so we'll put it into a ZZZ account so hopefully that'll be out of the way but still allow us to get our books correct the sales of product we're going to reverse that so that looks good and then the sales tax we put in a sub account for sales tax payable the 25 so it so if there were multiple sales tax accounts we can just apply it to one of them we're reversing the cost of goods sold and the inventory has a sub ledger to it which we saw last time was actually out off and now it's going to be back on balance it was off by $400 after the adjusting entries quick books not forcing us with the inventory to have an item to make the sub ledger force it to match as they do with the sub ledger for accounts receivable by customer which is actually makes it easier for us in the adjusting process so let's go ahead and save and close it and check it out save and close it and we'll go into the balance sheet so we can say okay what happened in March we did the reversing entry so let's go into March and for accounts receivable and check it out boom so now we have the actually we still labeled it adjusting entry i'd like to label it reversing entry let's go back into that one and see if i can fix that i'm going to say this is going to be reversing entry and i'll copy that memo all the way down okay let's save and close it again so now it's properly labeled as a reverse let's go back and refresh the report refresh and then i'll go back into it and it should then be properly labeled back in boom reversing entry so now we can see in March these two things cancel out so that that invoice is still in here because that's the original invoice but it's net it's neted out back to zero because we actually pulled it back into the prior period recognizing it in the prior period but we didn't want to delete this one instead we're netting it out in the current period in the current month with our uh reversing entry also you might say hey look why don't you put the reversing entry as of three five because because now it's going to show you why don't you do it as of the date of the actual invoice because then you'll have four or five more days where it's more correct otherwise this looks funny it's going to look funny until it matches out and the reason is that we want all of our reversing entries to happen at the same time all of our adjusted entries happen at the end of the period in our case 229 all of the reversing entries happen at the beginning of the next period in our case 3 1 that making it easier for us to identify what is an adjusting and reversing entry how do we know it is it's because it's on 3 1 so it's on that date and because it's a journal form which isn't the normal form used and because we put in the memo that it's a reversing entry now if i go back and bring this to the second so we see last month as well we can see then here's us bringing it back with the adjusting entry into the prior period and then the next month happens and these two things are netting out against each other so we brought it back into the prior period and neutralized it in the current period where the actual form was entered okay let's go back and then go to the profit and loss check it out here the other side goes to income so in uh march we neutralized it you can see right there so now we had that's when the actual invoice was input and and then we put a negative amount so it goes away if i go back to the prior month let's just go back one day then you can see we brought it back with the adjusting entry and then the original one is still there but we neutralized it we put in the a base with the acid with the acid like taking pepto-bismo or something and then it neutralized the acid in the i don't know if that analogy is a good one but same with the cost of goods sold here's the invoice and then we neutralized it if i go back cost of goods sold in the prior frame here's us bringing it back to the prior period here's the current period and the neutralization going back if we go to the balance sheet in the inventory same story the inventory has the same story people so we had the the 400 and the 400 neutralizing if i go back one day then there there is the adjusting entry decreasing it and then these two net out and then the same as the case with the sales tax that's the last account impacted a lot of activity so we made a separate account for the sales tax we put this one in there and then once again uh there's the reversing entry and if i go back we get the adjusting entry now this one you don't see the neutralization because we made a separate account for the sales tax that that we posted to instead of posting to the actual sales tax because there's not just one sales tax account there are multiple sales taxes that make up who we pay because there are multiple areas that we had to pay for state and local and so on so instead of trying to break out the sales tax to each of those individual accounts we just grouped into one sales tax payable account as a subsidiary account to one of these sales tax accounts because that added detail probably isn't necessary for external reporting in which case we're going to group all the sales tax payable into one account because that's what external people will want to see like the bank or something like that or if you need it for taxes you don't need to break it out typically by who you're paying uh who the vendor is so that's the general idea there now if we look at the subsidiary accounts for accounts receivable let's open up the subsidiary account i'm going to go to the tab to the right right click on it duplicate it and then we're going to go into the reports on the left hand side close up the hand boogie and scroll on down to who owes you and let's look at the customer balance uh customer balance detail let's do and so if i if i look at this as of the cutoff date let's make a custom date of 022924 that's the date we ran the financial statements so so then if i scroll down note that we added this customer zzz down here instead of putting the sub ledger information in the customer where the invoice was actually tacked to which was anderson so that we didn't have this journal entry form in anderson's detail but the total ties out to 22701 50 if i go to my balance sheet let's get rid of this tab now in february it's 21701 50 and then if i go to the next date if i if i go up a day let's go to i'm sorry let's go to 033124 the end of the following month then now you can see the invoice is properly in mr anderson's uh place here because that's the actual invoice not the journal entry and then we have the detail down below of the two zzzz netting out against each other looking a little bit ugly but at least it's at the bottom of the form notice that the total is still at the 22701 50 or is now at 22701 50 which is is tying out here so we still are tied out in march after we do the reversing entry and the invoice was entered let's look at that internally if i go internally here and i go into my customers and we look at for example mr anderson so notice i don't have any journal entries so mr anderson if they communicate with the bookkeeper the bookkeeper is not going to be like oh wait there's like a an adjusting journal entry i don't know what that is that that that's going to be a problem because we just did it for financial reporting purposes and then if i go down to customer uh zzzz to do which is down here this is where to do the message which is down here the journal entries this is where now note that i might be able to even clean this up a little bit even though their journal entries by making a payment form and linking these two together so you'll note right now this is kind of ugly because these two are on my on on my subsidiary report i'd like to match them to each other match them out so they're no longer showing as outstanding as though they show like kind of like an invoice and then a payment so if i go over here i could do that actually i can hit the drop down and say i'm going to make a payment i'm not actually going to record a payment i'm just going to net those two out with the payment form so i'm going to say there's the uh the journal and then here's the other side of it right so so these the two journal entries are going to net out against each other not recording anything because we're not actually receiving a payment nothing's going to go into the payment to deposit in other words what is a payment to deposit form normally do a payment form it decreases accounts receivable and the other side usually goes into the into the cash account but in our case nothing's going to go into the cash account because we have two sides of the transaction that are impacting accounts receivable we've got like a credit it would be like having a customer credit that we're applying out to the invoice and so they're going to net out against each other and we'll be able to see that because nothing will go into the to the deposit so let's save that and so that's pretty neat so now we've we've closed these out here and then if i go into my balance sheet and i've run it we can see there shouldn't be anything in that payment to deposit accounts still and then if i go into my sub ledger then and i run this again these two should go away so i'm going to say let's let's run this again and boom the two zzz's are gone so that might be a method that you could use by still using the same client of mr anderson in other words you might have put the same journal entries into anderson which is messy because you still have those journal entries in there but at least you can net the journal entries again against each other and then you if you wanted to present a sub ledger backing up or supporting your accounts you would have you would have anderson in there although it still looks funny because it would look like a journal entry but at least then when you're done and doing the reversing entry you can net the two out against each other so if i went back to the detail internally for example then within mr anderson you'd have this information that the bookkeeper would have to deal with but at least they're showing as green paid paid and closed so they're they're not going to be these open journal entries in there so you can kind of decide what would be the best method noting the methods that you could use if i go back on over here and say if you do an adjusting entry to accounts receivable here's your options number one don't touch accounts receivable at all make another account to do it but you can't make it a subsidiary account of accounts receivable because then you'd have to make it an accounts receivable type of account in which case you might still have to deal with the sub ledgers and therefore you'd have to make another account called accounts receivable as an other current asset which is a little bit ugly because now then you'd have two separate accounts but then you could do an adjusting entry without messing up the sub ledgers at all your second option you use accounts receivable add a customer but add another customer such as zzz putting it at the bottom of the list so that you have the activity in a customer that's that's there exclusively for your adjusting entries and hopefully doesn't bother the bookkeeper much or you use the the same customer that is linked to the adjustment that you're doing in our case the mr anderson which would make your sub ledger actually correct as of the cutoff so you wouldn't have a different customer zzz customer if you needed the sub ledger and then you can basically link the two out so it's still kind of messy internally for the bookkeeper but at least it's kind of closed out you don't have those open items those those are your options if we look at the similar but different method that quickbooks uses for the inventory here remember that the inventory has a sub ledger too if we're using a perpetual inventory system but quickbooks did not force us to have a similar thing to the accounts receivable an item in other words the subsidiary ledger for the accounts receivable has customers the subsidiary ledger for inventory has items for accounts receivable they forced us to use a customer when doing a journal entry for inventory they do not force us to do an item which means our sub ledger is actually off when we do our journal entry but we're okay with that because then we reverse it so let's take a look at that let's go to the tab to the right duplicate it and then we're going to go down to our aid to the r again our reports i don't know ar what am i talking about and then we'll put in we're going to inventory inventory evaluation summary and let's see it as of as of o 22924 that's our cutoff pulling out the trustee calculator this is broken out by item and the cost per unit and we we did a journal entry but we didn't have to add an item so you can see this one's at 4746 minus what's on the balance sheet as of february for inventory which is 4346 it's off by the 400 which is the journal entry we did as of that time period so our sub ledger if we wanted to provide the sub ledger like externally with the reports we would have to adjust it for the journal entry that we put in place however you know that might be an easier thing to do than if quickbooks forced us to add an item which would mess up the sub ledger which is there and flow assumptions that with a first and first out kind of whole thing right but if i go to the next period back to o 33124 then we're back in balance hopefully because that now we're at the 4346 which should match what's on the balance sheet here 4346 so notice how much easier that is because now i don't have to worry about really messing up the bookkeeper or at all i'm just going to say okay i'm just going to throw the sub ledger off but i know exactly what i threw the sub ledger off by and then i will reverse it and the sub ledger will be back in place so that gives us quickbooks is giving us more leeway to to do what we need to do there which makes it easier if we know what we're doing but it also makes it more likely that our sub ledger gets out of whack at some point and then and then you got to figure out what to do what to do when that happens right all right so that's it let's uh that's where we stand here's where our balance sheet is as of now here is our income statement but boom and let's take a look at the trial balance here's the trustee trial balance so our cutoff date is february so that's when we did the adjusting entry and then here's we did the reversing entries in march so you can check out both of those columns to make sure that we're uh in the same spot or we're in the same on the same books we're we're looking at the same page we're we're reading the same novel and it's and it's excellent uh so that's that