 QuickBooks Online 2024, reversing entry for unearned revenue or customer deposit, advanced payment. Get ready and some coffee because we're going to be like bookkeeping Einstein with QuickBooks Online 2024. Here we are in our get great guitars 2024 QuickBooks Online sample company five. We set up in a prior presentation opening the major financial statement reports like we do every time the reports on the left in the favorites right clicking on that balance sheet to open a link in a new tab right clicking the profit and loss to open a link in a new tab right clicking the trustee TB to do the same tab into the right closing up the hamburger changing the range up top 010124 tab 0220 let's do 03 actually 03 3124 because we're doing reversing entries this time selecting the drop down month by month and run it tab to the right repeat the process hand boogie clothes range change 010124 tab 03 3124 tab drop it down picking up the months and run tab to the right close the hamburger change the range 010124 to 03 3124 dropping down to the months and run it let's go back to the balance sheet we're doing the reversing entries now remembering that adjusting entries happen at the end of the month or year typically as of the cutoff date in our case February 29th and they are to make the financial statements as close to the accounting method as possible as of the cutoff date usually an accrual method but it could be similar method for cash based methods or a tax based method in this case we've been looking at an adjusting entry last time for accounts receivable and the unearned revenue so just a quick recap on this one because this one is a little bit confusing and one that you're not going to see every time for many industries because many industries don't have an unearned revenue situation so this is an area if you are a bookkeeper that you might be able to specialize you might be able to say look i'm i'm gonna be able to manage well like a rental property that always has to deal with these customer deposits or these computer application type of situations that always get the money before they actually do the work and come up with a system so that i can easily do their books and possibly specialize in those kind of areas this is has some potential for some specialization this is a desktop screenshot that we're using for the online software just so we can see the flow of the forms noting that on the revenue cycle at the end of the cycle or at some process within the cycle we expect money to be going up cash to be received in other words for work that is being done usually that happens from the arrows left to right sometimes we might just have a deposit form we wait till something clears the bank and then record it as revenue when we get it like a youtube youtube or something might do it that way sometimes we might have a cash register still on a cashed based system like a restaurant where we get paid at the same point in time we do the work but we have to record it at the cash register and then typically make the deposits sometimes we have to do the work first such as a law firm cpa firm landscaping where we do the work and then see how how much we're going to bill for the work based on possibly the hours and the materials and then we'll have to track the accounts receivable receive the payment and then make the deposit noting that's most businesses that's the flow of most businesses some businesses it's going to be backwards where we get paid before we do the work and those businesses would include classically book problems would be say newspapers magazine sales where you have a subscription model more currently you're talking computer applications where you get paid in advance and then you're going to do the work in the future so technically what should happen is you get the money increasing cash but the other side should not go to revenue yet because from a revenue recognition standpoint you haven't earned it you received it but you haven't earned it also just want to point out here that if you're doing your your books for taxation purposes then taxation purposes might have a different threshold as to when you need to recognize revenue for taxes the tax code may well say i don't care about the revenue recognition principle if you got the money in some cases i want you to pay us with it right the tax code might deviate from an accrual method in some cases in which case again you want to special if you're specializing in that area determine you need to determine are you doing the books primarily for tax preparation or for external reporting or for both and then what would be the best kind of accounting method to be using to accommodate the needs that you're that you're looking at but from a revenue recognition standpoint on an accrual basis we haven't earned the revenue so we would want to record it actually into a liability account which would be called unearned revenue or customer deposit typically however we saw from a bookkeeping standpoint it's easier to use accounts receivable oftentimes so let's jump over here see why that is the case noting that in accounts receivable this is the account that has the sub ledger tied to it so let's go to the tap to the right and open up a sub ledger right clicking on it duplicating it and then we'll open up the reports on the left hand side closing the buggy scrolling down to who owes you we're looking at the customer balance detailed report let's run it as of the cutoff date of let's see cutoff custom 02 29 24 boom and and so you can see internally this is the document or form that's that's showing you the detail of what's in the accounts receivable not by date of transaction as the transaction detail report would be but rather by customer and so this customer is showing a credit balance a negative amount of 200 which works great from an internal perspective because if i'm communicating with eric music i could tell them hey look you have a credit balance that we can apply to a future purchase but for reporting purposes it's understating the accounts receivable because it should not be a negative amount if we owe eric music something it's not an an asset it's not a negative asset it's a positive liability so from a bookkeeping standpoint what we said is we said hey look i'm going to keep the negative accounts receivable from a bookkeeping standpoint let's look at it internally by the way if i go into the internal