QuickBooks Pro Plus desktop 2022 adjusting entry depreciation. Get ready because we bookkeeping pros are moving up the hilltop with QuickBooks Pro Plus desktop 2000 to 22. Here we are in our get Craig guitars practice file going through the setup process with the view drop down the open windows list on the left hand side company dropped down homepage in the middle maximized into the gray area. Reports drop down company and financial looking at that balance sheet standard customizing the report with a range change from 101 to 202 28 to two fonts and numbers change in that font bringing it up to 14.
00:40
Okay, yes, please. And okay. Reports drop down again company and financial profit and loss standard with the range change. Oh, 101 to 202 28 to two, customizing the report. fonts and numbers change in the Font bringing it up to 14. Okay, yes, please. And okay, reports drop down, we’re looking at the account and taxes, Trial Balance customization with a range change.
01:09
Oh, 1012 to 202 28 to two, customizing the report fonts and numbers changing the font bringing it up to 14. Okay, yes, please. And okay. For this one, we’re going to be jumping over to the balance sheet because it might be a little bit easier to see the categorizations here. Last time we looked at the prepaid insurance, this is going to be similar in concept to the prepaid insurance, although a bit more complex in the details for the calculations of what the actual numbers will be when we do our journal entry.
01:43
So we’re looking at the depreciable assets which QuickBooks categorizes as fixed assets, those include like building equipment, furniture, and fixture, and so on. And we then have the same concept that when we pay for these items, even if we pay for cash and extreme example, it’s like a building, if we pay 100,000, for a building, even if we paid cash for it, we cannot just expense it. Because the difference between when we actually consumed the item. And when we bought the item when we paid for it is so extreme, that we still have to deviate basically from a cash basis, typically,
02:19
and put it on the books as an asset, and then allocate the cost over the useful life or as we consume the building, which is basically an accrual concept. And the tax code, if nothing else will basically require us in some instances, to do that. So so this is one adjusting entry, which we can’t really escape usually, even if on a cash basis. So that means that when we make purchases of large items, furniture, equipment, buildings, and so on, we put it on the books as an asset, it just like we did with the prepaid insurance, because we’re going to be consuming it over the future.
02:55
And then as we consume it, we’re going to be expensing it over the point in time so that we consume it in a similar fashion as we did with the prepaid insurance. However, when you hear that, you might say, Well, that makes sense. But why then, would we have two accounts here? Why wouldn’t we just say that when I decrease this, it’s going to be a decrease to furniture and fixtures, and the other side is going to go to furniture and fixtures expense, for example, which we don’t do we have depreciation expense on this other accumulated depreciation.
03:25
Why add that level of difficulty or complication? Why not just decrease them directly as we do with the prepaid insurance, which would be simply decreasing the prepaid insurance as we did last time, and and having the insurance expense account? And the reason is because the prepaid insurance we know exactly how much is being decreased. We know what we consume, because the policy is expiring. When we look down here, we don’t know exactly what it is that’s decreasing. It’s a complete guess.
03:52
We’re gonna say, I don’t know the building’s gonna last this long read, the equipment’s going to last last seven years maybe and then we’ll try to depreciate it over seven years, we don’t really know. So that means so we’re going to add a lot another level of detail in our reporting, saying this is how much we purchased the furniture and fixture for in total all purchases combined together. And this accumulated depreciation represents the amount that we have reported, allocating the cost or claimed the expense related to the depreciation,
04:21
which also represents the theoretical decline in the value on a depreciated basis of the furniture and equipment giving us a book value here and the more detail so instead of just having this one number 90,500, we now have this is how much we purchased it for. In essence, this is how much we estimated it going down for and how much we claimed as an expense. And this is then the book value after that point in time, the other side then go into depreciation expense, which again gets a similar kind of an ally of thought process meaning this is an estimate in essence, right?
04:57
It’s an estimate for the expense related to allocating the cost of these large pieces of equipment, the transaction once you know that’s fairly straightforward, it’s just going to be a debit or an increase to the expense accounts just like we did with prepaid insurance, but this time depreciation expense, and then an increase to the contra asset, which is basically a decrease to the asset account. These contra assets are basically kind of like we took the T account if you’ve no accounting like increases and decreases in an asset account, go up with a debit and down with a credit.
05:29
And we broke it out into like a SEVEN and an hour, right. And now we said well, it’s going to increase this side with the seven with the increases on the debit side and the our you know, like on the other side, we broke that out into another account and kind of have all the decreases that want to hold true all the time until we make sales and stuff like that if we sell the equipment, but general concept.
05:49
So that’s going to be the idea then. Now the next thing is well, where do we get the number to know how much has been depreciated, because notice that this number represents one lump sum number of a bunch of equipment that we’ve purchased in the past. And that sub schedule can be quite complicated. If something we often might not be, we generally do not track in detail.
06:11
In QuickBooks, we can track the items, but we might not track it in detail in QuickBooks, we might use something like like tax software, which is quite common due to the fact that we’re going to have to report this on a tax basis anyways. And if we get all this information into the tax software, then we can we can use the tax software to basically do the calculation of the depreciate ation as well if we so choose.
06:36
So just note, if you work with your tax firm on the depreciation, the general idea then would be this. They’re gonna say anything in the past that I purchased, like in this case, 270 5000, we’re gonna assume was on the tax return last year.
06:50
So they already have it on the books for the taxes. And then the current stuff that we purchased, which there shouldn’t be too many transactions, because these are large pieces of equipment, as well as the decreases the disposals and sales are the ones that we want to give to the tax preparer to have them add them to their schedule, so that they can get the supporting schedule.
07:12
So what that will look like on the tax side is something like this, you might get, you might see a schedule, something like this, if we saw this, we’re gonna say okay, and this is just an example schedule. So it looks something like this. This is a book depreciation schedule for all of the furniture and equipment. Now notice all of the stuff that we have represents the actual stuff that we’re putting on our books in one lump sum number, this is like the sub ledger, the sofa, the chairs, the recliners, the coffee table, the benches, bookcases, and so on and so forth.
07:45
And this totals up to the 98,000 here, which you could see is totaling our amount 98,000 here, so that should be kind of like a sub ledger, right. And then the other side is the equipment, forklift and the office printer, that’s going to be like the sub ledger, here for the 5000 that we have given us the detail of it. So when we actually dispose of something, we know the thing that we are disposing, we know which item we are disposing, when you make this sub ledger, when you give this information to your tax preparer, if they just put it on there as one lump sum and say this is furniture and fixture and one lump sum, when you sell something,
08:24
like a piece of a couch or something, it’s gonna be very difficult to then calculate, you know, which item you sold, and you’re gonna have to adjust the schedule. So what you want to do is put it on there piece by piece, so that when sales happen in the future or disposals happen, you can clean up this schedule, a good tax preparer should be able to do that to help you you know, do that. Now notice this is on a book basis, which we’re going to say is a straight line, we’re going to try to use a straight line basis here. But they’re they’re going to calculate it also on a tax basis on the software.
08:57
So that will be the default, of course, which is more complex. So when you look at the tax software, on a tax basis, your decision on the bookkeeping side of things is due if I’m a small business, maybe I just want to make keep my books kind of on a tax basis with regards to depreciation, because otherwise they have to record two depreciation schedules. Or maybe I think it’s worthwhile for me to record my side on the book depreciation.
09:24
Another thing that you might want to discuss with your CPA or tax professional here, the reason the tax depreciation is different because they use a similar method, but it’s but now they have a double declining method and a half year convention. And then you also have these concepts of a 179 deduction, which is like you can deduct more in the first year. So the tax code is not really geared towards In other words, reporting purposes that are that areto have display of your financial statements as accurate as possible.
09:55
They might have other incentives like stimulating the economy or just You don’t get it, you know, it’s a political thing or whatever. So we just follow the tax code of whatever it is. And so it’s it’s a little bit more distorted for bookkeeping purposes, but it might be the easiest thing to do. But if they if they put it in their books on a tax basis, most tax software also has the capacity if they know how to do it, to then to then also record the depreciation of book basis. And they can give you a schedule like this.
10:27
So you can use it to record your your depreciation expenses. Now notice the tax software will have pretty pretty clear cut categories of depreciation categories, typically like furniture and fixture, and the machinery and the equipment. That’s why we in prior presentations used those categories, you don’t have to, you could just use one big lump sum number of this a total purchases of furniture and equipment and one big lump sum number of accumulated depreciation.
10:57
But if you’re going to have the more detail, it’s nice to have the details that are going to tie out to the same categories of your sub ledger, which is going to be in the accounting software. So you might want to talk to the to the accountant when you’re setting up your accounting and say what are going to be the categories of the purchase of the equipment, and furniture and so on, that are on the tax software that I would like to use as a sub ledger, so that I can group my information in a similar fashion. We discussed that a little bit in a prior presentation.
11:26
Now I’m going to assume all this stuff happened last year, which was 2021. And this stuff is the new stuff. So for example, if I took all these items, 15,000 plus to 23,000, plus to 12,000, plus to 5000 plus to 2000 plus 3000 plus to 7000 plus to 8000, we get to that 75,000, which you’ll recall that if I go back on over and double click on the on the 98,000. Here, the 75,000 was already on the books from last year.
11:57
And this would have to be the information from the current year that we would give to the CPA firm that they would have to add in the current year and add that information here. So that so the new stuff, then that we give them would add up to the 7000 plus the 3000, plus the 2000, plus the 4000, plus the 5000 Plus to 2000, which gives us that 23,000 That that we see in the in the new items. So now we have everything on the books, and it’s 5000 machinery and equipment.
12:29
Those were new items as well in 2022, Representative forklift and an office printer just for example purposes. So then we got to think about the depreciation on these items. So here’s the depreciation basis, the prior year depreciation, so these are this was in depreciation in the prior year, you could see that that adds up to the 7500. That’s what we currently have on our books 7500.
12:53
Because we haven’t recorded the new depreciation that we would like to report, not on a yearly basis, but this case on a monthly basis. So if I go back on over here, now, we want to record the depreciation for this period. And we got the depreciation broken out into these two categories. So to do that, this is for a year. So these schedules are calculated to record depreciation for a year.
13:18
So what I’d like to do is break it down to two months. Now, it would be nice if I if you know, I could record this one month in January and February, but I’m trying to make things just simply correct as of the cutoff date right now, which is the end of February, that’s going to be two months of data. So for example, that this is we’re just going to say straight line depreciation seven years.
13:40
So for example, if I had the this item up top at the 15,000 divided by seven, then you got one year’s depreciation would be that 2001 42 About. So that’s how each of those would be calculated, and then we’re just summing them up. So now we’re taking the total depreciation for this time frame. This is the total depreciation for the machinery and equipment. So that’s, that’s the calculation.
14:08
So once we have this schedule, if everything lines up on this schedule, then it becomes the journal entries pretty easy in terms of the accounts that are affected, these schedules can be intimidating, however I can understand. So now what we’re gonna do, and we might only record this on a yearly basis if you’re a small business, and but we might want to do it on a monthly basis as well.
14:28
We’re gonna do this again for the two month time period, because our cutoff is February 28, in this case, so I’m going to take that 1401 which is the yearly depreciation divided by 12, that would be 16116 6.75 times two to get the 233 3.5. That’s what we’re going to record finally, okay, let’s do it. As you go back on over here, it’s just going to be a debit to depreciation expense, a credit to accumulated depreciation, we have an accumulated depreciation for the furniture and fixtures, that’s going to be a balance sheet account.
15:02
So we can use the register to enter it will also take a look at it in terms of debits and credits, though as well. So I’m going to go back on over and lists and take a look at our chart of accounts. And notice on the depreciation side, we only have one account for depreciation that you could use that or you might want to do the same breakout and have different accounts for depreciation,
15:25
I’m just going to keep it at the one for this for this example here, notice up top that we created these kind of sub accounts so that we have the furniture and the machinery, and then the accumulated relation cumulated depreciation related to them, making them sub accounts so that the system will show us the cost, how much the accumulated depreciation was, and the book value.
15:50
Okay, so I’m going to go let’s start in the furniture and fixture, I’m going to double click on this register. Now these are tricky, you’ll remember because, you know they’re contra asset accounts. So that means that when I try to use a register, then the debits and credits are actually a little bit easier because it’s an increase to this account is a decrease to the asset. So the decrease is actually what we want, because it’s they’re trying to claim with a decrease acid account, because it’s a negative asset account. In essence, it’s a contra account.
16:18
Okay, so we’re gonna say I’m gonna close this out. And we’re on 228. And let’s see this is going to be then what did we say it was 22223 33.5. So there we have that, and the other side is going to just simply go to depreciation, I’m just going to call it an A, D, j, and tree. And there we have it. So it’s up to the 9983 350. So let’s close let’s open up this item, the caret, close this out, and then go back to our balance sheet.
16:58
So now it’s at the 933 50, does that tie out to my schedule, that would mean that it would be the current depreciation, and the last time 750, which is right here last year, plus the current 1401, which would get us to the 21. Well, and then I’d have to hold on a second, let me do that. Again. It would be the 1401 divided by 12, times two plus last year 750. And there’s the 983 350. So that looks good.
17:35
And then the other side is going to be on the profit and loss in the expenses. And this is a significant expense now, which can make your net income go down a lot, which could be good for taxes, but bad for other things like if you want to loan or if you’re looking at it for trying to get investors to invest and so on. So then we’re going to go back on over to the balance sheet, let’s do the other side, which is the machinery and equipment. So that’s 833 for a full year.
18:07
So I’m going to take that 833 divided by 12 times two for the two months 138 83. Go back to my QuickBooks, and we’ll go to the company dropped down. Now I’m going to go to what did I want to do the Chart of Accounts lists Chart of Accounts, it’s open over here. And then I’m going to go to this one, double click on the accumulated depreciation for the machinery and equipment taken us into the register.
18:36
And we’re going to say this is on 228. This is going to be a decrease again, of one, three other sides just simply going to depreciation expense, and it’s going to be a DJ entry. So there we have it, let’s open up the caret.
18:55
Close this out, close this out, and go back to the balance sheet. And so now we see this other category, this new account has now popped up it wasn’t there before. So now we got this drop down, that we see. And we got the 138 83 which should be the same, you know should tie out here. So that looks good. So then you could you can now collapse these of course and say this is the book value, just showing the book value for each of them the way we set it up with the sub account.
19:25
And then you can provide the more details and this is how much we purchased it for this as the depreciation thus far for the life of it. This is the book value. Same with the machinery and the equipment. If we go to the to the profit and loss side of things, we got the expense which once again is significant expense. We’re still got income over the two months, that’s nice, and then we’re going to double click on that expense. And so there we have it. Let’s take a look at one of these journal entries double clicking on the journal entry. Double clicking on the journal here.
20:00
And we can see the journal entries is straightforward, with simply a credit to the accumulated depreciation that debit to the depreciation expense, it’s really the categories. And getting that that sub ledger calculation and working with the tax professionals to make sure that you’ll have all that set up where the confusion actually often lies, save it and close it.
20:23
And then I’m going to do the same for this for the second one, I’m gonna close this back out and look at this one, and just add the memo. Double click in here and add the memo. We need to get the memo did you get the memo? And so we’re gonna say save it and close it. It’s an important memo. Okay, and then we could see these transactions on our journal report by going to the reports drop down accounting and taxes, we’ve been taking a look at the journal. And let’s make the range from from oh three, let’s say no to 28 two to 20301 to two.
21:07
And then I want to see only the journal type of transactions customizing up top filters, we’re looking at the journal types. So transaction type, and the journal. Okay, so now we have all our journal entries included with the memo. So we could see that they’re adjusting and reversing entries. And and see that what we have been doing thus far, the ones we just took a look at are these items on down below.
21:36
Now note that these are not reversing entries, we’re not going to reverse these. These are permanent differences. So we don’t have to worry about any reversing entry related to them. If we go back to the trial balance, this is what we have thus far with regards to the trial balance. And you could check your numbers, see if they all tie out. If not, we’re going to provide the backups. So hopefully you want to rework something or something like that. Hopefully those backups will be working for you to do so.