QuickBooks Pro Plus desktop 2022 adjusting entry accrued interest and get ready because we bookkeeping pros are moving up the hilltop with QuickBooks Pro Plus desktop 2022. Here we are in our get great guitars practice file going through the setup process with the view drop down the open windows list on the left hand side company drop down home page in the middle maximizing to the gray area reports drop down company and financial looking at that balance sheet standard.
00:29
We’re going to be customizing it with a range change from a 1012 to 202 28 to two as of the end of the second month of the operations that we’ve been looking into fonts and numbers changing on up to 14 and okay, yes, please. And okay reports drop down company and financial profit and loss report rains change from a 10122202 28 to two, customize that report. Bring in the fonts and numbers on up to 14 and okay, yes, please. Okay, one more time with the reports drop down come accounting and taxes this time trial balance range change from a 101 to 202 28 to two customizing that report fonts and numbers change in that font bringing it on up to 14.
01:25
Okay, yes, please. And okay, we’re gonna be focused more on the trial balance with these adjusting entries, because there are generally two sides to the entry one being a balance sheet account and an income statement account being the other, it’s nice to be on the trial balance, when that is the case, we’re going to be looking at this time at the loans down here concentrating on this $5,000 loan. And I’m imagining a situation where the payments are not happening basically at the end of the month.
01:54
So we have an accrued interest type of situation. To analyze that in a little bit more detail. Let’s go to the Excel. And we’re gonna imagine this is our loan term. So we got the $5,000 loan, we’re gonna imagine it’s just a three month loan, and we have a large interest rate of the 35% due to a small loan and to make it a significant change. And then we’ve got the payment of the 1007 6482, we’re gonna imagine that the loan periods worth the period zero to 15. And then the next year period two would be 315,
02:27
and then 415, and then 515. So that means we’re not going to make the payment on the loan until 315 of the next month after the cut off the cut off meaning we want to make the financial statements correct as of the date we present the financial statements, which is going to be in this case to 28 the end of February.
02:48
And that means that there’s been 15 days where interest would have accrued, which we had not yet paid the interest as of the cutoff date, because we’re not going to pay it until 315. It would be a similar situation, if you have a rent type of situation where you’re saying, okay, the cut off is right in there, I’ve been living or I’ve been using this rental property. And I don’t owe the rent say till after the cut off, say till next year. But I’ve accumulated the fact that I owe the rent, I can’t get out of owning the rent, because I’ve used the property during the rental period. So even though I have not yet paid it, it should on an accrual basis be the rent in this time period.
03:27
Same concept here. This is basically the rent on the purchasing power of the $5,000 that we’re paying, we have used 15 days of it. And even though we’re not going to pay that 15 days worth of the rent called interest, until next next month, we we owe 1515 days of it because we’ve consumed it this month. That’s the concept of the adjusting entry. So the interest according to this table for the payment that would happen on 315 is 145 83.
04:02
Half of that was actually accrued or we consumed it even though we haven’t paid for it this month. So if I take half of that, which would be 72 just taking that interest divided by 272 92. That’s going to be the amount that we should be recognizing on an accrual basis in this month. Now note we’re not taking the full payment, because note the payment is going to be a reduction to the loan principal, it’s just a payment back of the loan principal, what we’re looking at is the timing interest here the interest,
04:35
which is kind of like the rent on the money, that’s going to be the adjustment that we are concerned with at this point. Now also note this is a fairly small adjustment. So you might say well, it’s not a big deal. 7292 You know, maybe it’s not worth my time to adjust to you. And that might be the case because it might be in material in some cases, meaning it’s not material to your decision making process.
04:56
But you can imagine a situation where this type of adjusting entry would be a material adjustment, meaning it could have a significant impact on the financial statements to someone making decisions upon it. And so that’s why conceptually, it would be a useful and relevant kind of adjusting entry. So that’s the general concept of it. So we’re going to put that into place here, all the adjusting entries will be as of the end of the period, the cutoff date, in our case, which is going to be February 28.
05:24
You can also imagine a situation you might be asking yourself, well, what happens if I put that adjusting entry in and then the next payment comes into play, it’s going to cause a problem for the bookkeeper. Because the bookkeeper just wants to make the payment in accordance with the amortization schedule here. And so in order to deal with that, to make a difference between the adjusting entries and the data input, we’ll actually do a reversing entry as well. But for now, we’re focused in on getting the financial statements correct on an accrual basis, as of the point in time that they will be presented, that being the end of the month in this case.
05:59
Note again, this is the type of adjusting entry that if you’re working with a CPA firm, or tax preparer, if they needed to make an adjusting entry like this, that they might do it at the end of the year, or the end of the month. And then your goal to deal with them is to make sure that you have the proper cut off to know that you’re doing what you’re going to do. They make the adjustment that they do in such a way that they don’t mess up the normal accounting data input process. Now, as we enter these into the system, we usually would be just doing a journal entry, debits and credits.
06:30
But if there’s only two accounts affected, we might try to get used to the concept of just using the registers, which is another way to enter a journal entry without basically using the debit and credit format, even though it will show the debit and credit to because it’s still going to make a journal entry. So when you use the registers, any account that’s going to be a balance sheet account will have a register, similar to the checking account. What we’re going to want to do then, is increase the fact that we have this kind of liability, you might say, well,
07:00
I should increase the loan amount, but we’re not actually going to increase the loan, we’re going to increase interest payable or accrued interest would be a liability account. And then the other side of it is going to go to interest expense down here in interest expense, because we’ve accrued it during this time period. So again, you could to do this enter a journal entry, you could go to the drop down and make journal entries to enter it, we’re going to go to the list strapped down, however, and the chart of accounts. Now if I use the Chart of Accounts, I can’t use the account for the interest expense because there’s no register because it’s an income statement account,
07:38
I need the balance sheet account, which we’re going to call it let’s call it interest payable, interest payable or accrued interest, so called interest payable, and we’re gonna hit the drop down or rise up. And we’re gonna say that we want a new account. So I’m going to go down and I’m going to make a new account, I’m just going to call it an other current liability account, other current liability type of account and continue. And then I’m going to call it interest payable.
08:05
Now that you can call it either accrued interest or interest payable. accrued interest is a name that I guess it’s kind of a more classical name, it kind of describes what is happening, the interest having been accrued, but not yet paid. But I also kind of like the interest payable because interest payable kind of sounds like accounts payable, it indicates that it’s a payable that kind of tells you it’s a liability account, it kind of tells you what you need to do in the future for it, which is the payable, so I’ll typically use the payable here. So interest payable. And that’s all we need on the current liabilities. So I’m going to set that up, I’m going to save it and close it.
08:41
So there it is, and then I’m going to go into the register by double clicking on it. Now I have to note that I’m in the interest payable register, I’m going to close the caret so that I make sure that I’m entering the transaction in the proper way. So we’ve got to know which side of the transaction we’re in. So we’re going to be increasing or decreasing this interest payable, which if you know debits and credits is going to increase you know, with a credit, but here it’s an increase to a liability. That’s all we really need to know. We will look at the debits and credits after we enter this as well.
09:12
So you can you can see it in a journal entry format to the dates will always be Oh 228 to two at the end of the period at the cut off, and I’m not going to put anything in the the PE e we’re going to say the interest is going to be an increase. It’s going to be an increase of that. What did we say it was we said it was 70 to 92. So we’re gonna say we’re at seven 2.92. And then the other side needs to go to interest expense. I’m going to type in interest, expense, interest expense, and then I want in the memo to identify all my adjusting entries I’m going to say a DJ entry.
09:59
Entry And then for and tourists or it could just say, a crude in tourist, the major point I want to make sure is to label it as a DJ entry. And that’ll give us another kind of characteristic that will tell us and the accounting department both the both the data input side of things, the bookkeeping side of things, and us on the adjusting entry side of things, that this is an adjusting entry that we did this to reconcile things as of the end of the time period.
10:29
And if it’s messing up the data input on the accounting side of things, then we got to make sure that we handle that somehow, either on the accounting side or have some type of reversing entry to deal with it. So I’m going to save it and close it. And there we have it, let’s check it out, I’m going to close this out, I’m going to open up the caret once again, go back to the trustee trial balance. And so now we’ve got then a payable account, which should have a payable account up here in the liabilities, there’s the 7292. And if I double click on it, then it’s a journal entry.
11:05
Even though we entered it into the register, here’s what we’ll see the actual entry, the journal entry will here, it takes me to the register, but then I can double click here. And it takes me to the journal entry where we have the debits and credits, which is going to be interest payable, a credit increase in a payable, and then the other side going to interest expense, increasing the interest expense, close it. And we probably want this on both sides, this adjusting entry,
11:31
I’ll put that on both sides, save it and close it. And I’m going to say yes. And close this back out, close this back out the other side is in the interest expense. So an interest expense we see then the Hold on a sec, that’s internet expense, that’s not the same thing. It’s on the bottom interest expense down here. And so there we have it, there’s our journal entry on 7292. Looks good, let’s close it out. Let’s take a quick look at it on the balance sheet and income statement. So on the balance sheet, it’s going to be here in the other current liabilities.
12:07
So we’re going to be down here, other current liabilities, there’s the interest payable. And on the income statement or Profit and Loss report, we’re going to see it down in the interest expense we put at the bottom, it’s included. And this number down here, notice that a lot of the adjusting entries might actually increase, oftentimes, they’re going to increase expenses a lot of the time.
12:27
So it might actually end up making people look worse than they otherwise thought they did in terms of their income or net income, which could be good for taxes, because one of the big ones is often depreciation expense, which could lower your actual net income a lot, which again, could be good for taxes.
12:44
But it could also be kind of a shocker when you’re trying to get a loan or something that depends on what you’re trying to do. Like if you’re trying to convince someone to invest in your company or give you a loan, then you want to look good. And when you’re paying taxes, of course, then you want to look bad in terms of net income so that you pay less taxes so that we always have that kind of push and pull between the interests of the company. But obviously, we’re going to try to create the financial statements as accurately as possible is to go with the adjusting entry process.
13:15
Now again, you might just say, Well, what like if I go up here now with this loan, I got this loan on the books now for let’s go up to the balance sheet again, and say we’ve got this this loan payable, interest payable, and I’ve got the actual loan, what happens when I pay the loan, then usually I would break out the deduction on the loan payable, and then decrease cash and then record interest expense in accordance with this, this payment structure on the amortization table.
13:48
And but now I’ve got this payable like this interest payable sitting there. So you could do that. So well. Now the bookkeeper should reverse out the interest payable as they make the the next payment, or do you just leave it on the books the whole time until you do the adjusting entry again at the end of the next month, which is kind of ugly to do, it might confuse people. Or you do a reversing entry.
14:12
So I made it correct if I make this correct as of the end of the period. Great. Now I can report it and show it to external users. But it’s not useful that 15 Day adjustment for normal internal bookkeeping purposes. So I can do a reversing entry. All reversing entries typically happen as of the first day of the following period,
14:32
which in this case would be March 1, and then bring us in essence back to where we were before so that the bookkeeper doesn’t look at this and say well that I don’t know what to do with that account when I make you know the next payment on the loan. So we’ll do that next time for now here’s where we stand with the trial balance. They could check your numbers here. If everything looks good, good. If not, try changing your date ranges and we will do another report at the end
14:59
This one being a little bit different a journal entry report just to just to see where that is, as well, because when you show this to somebody else, you might want to tell them what adjustments you have made. When you’re communicating with a client and a bookkeeper, you’d like to know what the adjustments that were made, as of by the by the adjusting department. So to do that, you can go to the reports drop down, you’re going to go to the accounting and taxes.
15:24
And we’ll take a look at the journal report, which will give everything in terms of journal entries, combines multiple items in the transaction to single line, okay, so here’s our, I’m going to make this as of oh, 10122202 28 to two. So there’s the journal report with all the activity, I’m going to try to limit it now to try to find just the data that we didn’t interred in the adjusting time period, which all happened at the end of the period, which is Oh, 220 822. So that’s the starting and ending date.
15:59
So I got still a bunch of stuff that happened, what I’d like to do is limit it now to the journal entries that I have put in place with a journal entry, not a bill, not a check, and so on, we can customize this report, filter it by transaction type, and say now I just want the entries the journal entries. So that’s going to be these journal right there. And then Okay, so we’ll get into that more in more detail.
16:27
And then I have that which will break down. And then I also have the fact that I put the adjusting entry here. So I can clearly identify what the adjusting department kind of did. And if the bookkeeper has a problem with something they can kind of see. Okay, that’s what the adjusting department did.
16:43
Or that’s what we did during the adjustment process. And then we can go from there to kind of figure out any problems that are happening between the accrual type of transactions at the end to make the presentation proper with accordance with the accrual basis typically, and the normal data input side of things.