 QuickBooks Desktop 2023. Reversing entry are crude interest. Let's do it within two-its, QuickBooks Desktop 2023. Support account 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. Here we are in QuickBooks Desktop. Get great guitars practice file. We started up in a prior presentation, going through a set of process we do every time, maximize the homepage and the view dropdown. We got the hide icon bar, open windows list checked off, open windows open on the left. Reports dropdown, company and financial P&L, profit and loss income statement, change in the range 010123 to 022823 as we do our adjusting entries, February 28th being the cutoff. Customize in the reports, fonts and numbers, change in the font to 14. Okay, yes and okay. Reports again, company and financial. This time balance sheet, customize it, change the range 010123 to 022823 and we'll go to the fonts, the numbers changing them to 14. Okay, yes and okay. That's the setup process we do every time. Now, last time we did an adjusting entry as of the cutoff date, making the financial statements as close to an accrual basis, the basis that we're imagining we need to be on as of the cutoff date for the interest. So we have the interest payable, just to recap that process. Remember that we thought that we had our backup data for the interest as in essence being our amortization table. We've got the $5,000 loan on the book, but we're saying that that first interest payments not gonna happen until March after the cutoff date, which was in February, and we're saying that half of the month was in February. So technically then, the interest that was incurred on the borrowing of that $5,000, which would be similar to rent, for example, on an office building should be applied to the period that we used it. So that means that we wanna pull half of this 145.83 into the current period. To do that, we did an adjusting entry, and we said, okay, we gotta make our financial statements correct, so we just did a journal entry, entering the interest payable with a journal entry here, and the other side then going to the P&L reporting that expense that we did incur because we had the loan outstanding interest expense down here at that point in time. Now, if we leave this in place, the problem is, and when we think about this, we wanna think about a separation from the adjusting department and the accounting, even if we're doing both of them, but oftentimes we're not, oftentimes we might have a CPA firm or something doing the adjustments, and then the accounting department or the bookkeeping doing the bookkeeping or accounting process. So we wanna say, okay, I don't wanna mess up my normal journal entry process because if I think about my normal journal entry process down here for paying off the loans, you'll recall we have a couple things we need to be considering. One, I like having a separate loan balance for each loan so I can tie it into the amortization table. Two, from a bookkeeping standpoint, I have to deal with the interest and the principle. I can do that by every time I enter a transaction, breaking out the interest and principle per transaction, tying into the amortization table that goes with that particular loan, which is the method that we are using here, or I can try to just record everything, basically possibly using bank feeds to the loan and then let the adjusting department fix the loan balance as well as the interest periodically. That's not the method we're gonna use here, but that's a method that you might want to consider and we have to consider the fact, number three, that there could be a short-term and long-term portion to individual loans and I don't want to, on the bookkeeping side, have to account for, in this case, four accounts possibly, or possibly three accounts that have a short-term and long-term portion. I would like periodically to do that with adjusting entries and then combine them back together. We'll talk more about that in the future presentation. Here, we're imagining I'm already gonna be breaking out the interest and principle on the loan payment for this $5,000 loan, which would look something like this, the journal entry, if I didn't have an adjustment, would say cash is going down for the amount on the table here of this amount. We've got the interest, which would be this and then the loan, which would be this. There's already three accounts that are impacted. If I entered that into QuickBooks, I might do that with like a check form, for example, and I'd have to be breaking out between the interest and principle already. If I had to account for this as the bookkeeper, then it would be even more complex because then I would have to say, okay, cash would go down, but then the interest payable would have to go back down and the loan is gonna go down and then the interest expense in the current period would be only $72.93 in March in this case. So let's go back to the profit and loss or let's go back over here. Now note what we wanna have happen at the end of the day, in essence, is that the interest that's gonna be reported in March is gonna be the 72. So let me break this out by month. I'm gonna say let's break this out month by month. And so we applied the interest here. And if I go into the interest expense, we've got the 72.92 at the end of the day, we should have that amount in February and then the same amount in March. That's what we wanna happen basically at the end of the day. But rather than have the bookkeeper have to do that with this journal entry, I want them to just do what they normally do, tying into the amortization table. And that means that we have to do a reversing entry. So we're gonna do a reversing entry to give us back to where we started because this adjusting entry was just a timing difference. So note that all reversing entries I'm gonna make as of the first day after the cutoff. I'm not gonna try to make it on the exact day when the loan payment would be made. You might say, well, why don't you make it basically when you're gonna make the payment? Which would happen, let's say on the 15th of March. I don't wanna do that even though that would make my financial statements more correct for 15 days of March because I'm not worried about being exactly correct in the middle of the month. I'm worried about being correct as of the cutoff dates and in this case, the end of the month or you might in some cases just be looking at the end of the year. And the reason I wanna do that is because it also allows me to line up my adjusting entries as of the same date so I can locate them and all my reversing entries as of the same date so I can locate them. So let's see what that would look like. It's a fairly basic transaction because we're just gonna reverse the exact thing that we did before. So if I go back to, let's go to the list dropdown and go to the chart of accounts before we set up this interest payable account, I'm gonna go into that register and I'm just gonna say I'm gonna reverse what we did up top but I'm gonna do it as of the first day of the following period. So the first day in March after the cutoff in this case. So we're gonna say this is gonna be a decrease of 72.92 and then the other side is gonna go to interest expense, interest expense. And this is gonna, I'm gonna put reversing entry. Now this entry should look unnatural to some degree because we shouldn't really be decreasing interest expense. That's not what normally happens in our normal accounting process. It's only happening here because we're reversing this timing difference that we had to put in place in the adjusting entry to not mess up the bookkeeper from the accounting department from doing what they normally do. So if I double click on this, it takes me to the journal entry. Here's the journal entry. I'm gonna copy and paste the memo on both sides here. So that looks good, interest expense. So I'm gonna save it and close it and then say yes and let's close this out and then I'm gonna go back to the balance sheet and let's see what happened. So as of February 28th, there's the 72.92 on the balance sheet. But as of the first day of the next month, then we're gonna say it's gone, right? Now we've removed it. It's gone back down to zero. That's what we want to happen because that'll mess up the bookkeeper, right? So we got it correct as of the cutoff, which is 0-2-28-2-3. And then we reversed it to not mess anything up going forward if I double click on it. And I say, let's go from here up through March. You can see it went into the account and then it goes back down to zero because we reversed it. Closing this back out, then if I go to the profit and loss statement, let's bring this up to March, 0-3-31-2-3. And so now we can see what happens on a month by month. We had it here in interest and then we reversed it in March. So if I double click on March and I bring this back to two, let's say there. So it went up before the cutoff and then we brought it back down to zero after the cutoff. So you can see it's a timing difference because we just increased it and then decreased it. So no net effect over the full time range. However, it does have an effect as of the cutoff date, which is meaning it's in place in February. And also note if I run this income statement just for March, it looks funny because I shouldn't have a negative expense. That doesn't make any sense. But it will make sense once I record the normal transaction. So when the accountant records the normal transaction, which is this, they decrease cash in accordance with this table, they record the interest of 1-45-83 and then the loan decrease, this 1-45-83 will net out against this 72-92 to make a positive 72-92, which is a proper allocation between February and March. So it's kind of a little bit more of an ugly process to look at the audit trail of it, but from the data input format and the separation of duties between the accounting adjusting department and the data input, it works quite well. Again, you might say, well, why don't I do my reversing entry instead of making it as of the first, why don't I make it as of the 15th because that's when I'm gonna make the payment. Then the books would be correct the whole way through because it wouldn't be there until the 15th when I make the payment and then it would net out against each other. But again, the idea here is I'm not worried about it being incorrect so much in the middle of the month because I'm okay with it being incorrect in the middle of the month from a perfect accrual standpoint because the goal is to make it correct as of the cutoff dates and to be able to as easily identify as possible what I did in the adjusting and reversing department. And I can do that by assigning exactly where I'm gonna do the adjustments, right? Right after the cutoff date, not in the middle of the month. So that's the general idea of it. And then, and so that is it. So now let's take a look at the journal reports because oftentimes you will then need to communicate between the adjusting department and the reversing department. We might wanna make a report of just the adjustments and reversing entries. So a report we could run, reports drop down. We can go to the accounting and taxes and let's look at the journal report. So journal report and QuickBooks combines, okay. And let's make this as of the cutoff date, which is gonna be, I'll make it first for the cutoff date, 022823 to 022823 one day because all of the entries were made as of that day. I'm gonna customize it, fonts and numbers, change the font. Let's bring it to like 12, see if that's too big or too small or just right. Just like Goldilocks and their porridge, we wanna make it just right. Don't wanna make it too big or too small. So there we have it. Now notice that this journal report you would think would just report the journal entries, but no, it's a nice report. It reports everything in journal entry format giving us the debits and credits. But I wanna look for the type of form that are just the journal entries. That'll allow us to further drill down on just those transactions that we put in place that were journal entries. So we could filter this report by going to the customize filters. And I wanna filter by type, which is down here somewhere, transaction type. And then I wanna just see the journals, the journals. And that's it, okay. And now it filters down to just that one journal entry. Now there could still be a couple. You might have some other journal entries that you put in place, but it's not normal that you enter journal entries in the normal accounting process. So this is a great tool to kind of narrow down to these journal entries. I know it's an adjusting entry because one, it's a journal entry. Two, it's as of the cutoff date, February 28th. And three, I said it was an adjusting entry right here. If there was anything else that doesn't have those items, I could still export it to Excel and like delete anything that shouldn't be there, for example, if I needed to communicate this to a client. Now, if I go one day up, one day up, there's our reversing entry. So we've got these nice reports that we can generate to hopefully help communicate between the adjusting process and the accounting process. Okay, so that's it. Let's go ahead and run our reports for the trial balance. I'm gonna make the trial balance first to the cutoff date, which is 010123 to 022823 and customize it, fonts and numbers, changing the font, bringing it to, let's say 16, okay. Yes, okay. So this should be the same place we were at before. So you could check your numbers there. And then we made an adjusting entry the day after the cutoff. So I'm just gonna bring this all the way out to the end of the year. We'll just say, well, let's make it out to the end of March, 03, 31, 23. And so this then has that reversing entry. We haven't entered any actual bookkeeping data input into March, but we did enter that one reversing entry in March. And so there's where we stand as of this point in time.