Hello in this presentation we will enter the reversing entry related to the accounts receivable adjusting entry into our bookkeeping problem in Excel. Keeping in mind how the same information might be input into accounting software such as QuickBooks, we will first take a quick look at QuickBooks and then jump into Excel and enter our adjusting or reversing entry there. The accounts receivable reversing entry like all reversing entries will be done after the adjusting department and reverse the entry made for accounts receivable. Therefore we need to know what that receivable reversing entry is. Remember what happened is that we had an invoice that went out correctly but the invoice went out after the cutoff date. In our case, it went out in March even though the work was done in February, and therefore we needed to bring that revenue back in February.

So we recorded the the entry related to an invoice in February. And of course, what's gonna happen there is that as of the point in time that the invoice was actually created, we have put that invoice in the system two times. In order to adjust for that we could reverse our adjusting entry as of the first day of the following month. So first we'll take a quick look at QuickBooks and then we'll jump back into Excel and QuickBooks we have this information here. And we could do this once again most likely would be doing this with the format of entering journal entries, and make the adjusting and reversing entries it is possible to do this with our registers however, and go into the use register and reverse the adjusting entry that was made. In essence, the adjusting entry was an entry that is behind the creation of an invoice.

So what we're going to look at is we're going to say hey, here's the here's the journal entry for an invoice. And we will reverse that entry for reversing entry as of the first day of the following month and in our case That being March. So we're going to enter that into Excel. So we'll take a look at that. Now here we are in Excel, we're in our reversing entries tab, we're going to be entering a reversing entry for the accounts receivable. And in essence, what we're going to do first is take a look at this entry.

This is a bit more complex of an entry when we were looking for the entry related to an invoice and then we want to reverse it. So the easiest way to do something like this, and this is similar to if we were doing a credit memorandum or something like that is to look at the journal entry and then do the opposite. So we're going to go back to the adjusting entry and see what the adjustment entry was. So I'm going to go to the adjusting entry tab. And it's going to be down I'm down here in a 12 through D 17. And the idea here was that as of the end of the month, the invoice related to this entry was entered but not until after the cutoff date in March, but the work was done before the cutoff date sometime in February.

The work in this case Is the delivery of inventory. So we would check the shipping documents and we'd say Hmm, the work was done before the end of the month and therefore the revenue under the revenue recognition principle as well as the cost of goods sold under the matching principle should be recorded in this financial statement. So then this is just gonna be the entry for a an invoice, we debit accounts receivable, and then we credit the merchandise sales, the revenue, and then we have the sales tax payable Of course, as well that we had to collect on it is a credit. And then in the cost of goods sold, we have cost of goods sold a 400 and inventory 400. So what we're going to do is just reverse this again, it's going to look funny, it's going to look weird, and it's going to be actually not totally correct as of the first day of the next month.

It won't be correct until the day we actually invoiced somebody sometime in March. So we're that's the cost we're going to have to sacrifice they're going to make something look kind of funny and Till this next thing happens and that the invoice was issued. And once that happens, everything will be correct. And that will give us a nice break between the accounting department and the adjusting department. So what we're going to do is we're going to we're going to debit the merchandise sales, we're going to debit the sales tax payable, and we're going to credit the accounts receivable. And then we'll do the debit to the inventory asset and credit cost of goods sold.

Let's do that. Now back to the reversing tab, we're gonna go all the way back over here to the right to the reversing tab. And we're going to do this as of the first day of the next month as all reversing entries are the first day after the financial statements were created, which in this case is three one. And we're just going to reverse this out. So we're going to reverse the order a little bit too we could make it just the same exact order meaning before we debited the accounts receivable and I could start with accounts receivable here. I won't do it and put it as a credit, but then the credits would be on time.

And whatnot. Most of the time, when you see these reversing entries, they still keep the debits on top, which means that we have to adjust the order a little bit. So what we're going to do is is, we could start with accounts receivable, but we have to make it a credit. So I'll copy that. And I'm going to put it on the bottom this time. So it's going to be down here and B eight, right click and paste 123.

And we credited it for 525. There's a sales price of 525 was the sales tax. So it's 525 on the credit, and then we had the other side usually is sales. If we were to think about it, when we're creating the journal entry, sales usually goes up and this time we're making it go down. Note there's nothing in sales, of course because it closed out already to the equity. So we're going to we're going to make a negative sales here.

So we're going to copy the sales, it usually goes up with a credit we're going to make it go down with a debit so we'll copy k 22, we'll scroll upward be six, right click and paste 123 and that is For the 500, the sales price not including the amount that we will be receiving for the sales tax. And then the difference, of course, is 25. And that's the sales tax that we're going to have, it's going to be also reversing it usually would be increasing the sales tax payable here. And now it's going to be decreasing it. Note there is a sales tax payable here, unlike there was nothing in the sales down here because this is a permanent account up here, as opposed to a temporary account it down there, and this account did not close out to therefore the equity account. So there's the credit balance, we're going to make it go down by doing the opposite thing to it, which in this case is a debit.

So we'll copy k 16, right click and copy. scrolling up we're going to put that in B seven or right click and paste 123 we could indent this one over here we can go ahead and increase the indentation go on to the Home tab the alignment group and increase the indentation Then we typically have, if we were to record this, we usually have the the inventory going down. And now we're doing the opposite. So the inventory is actually going up with a debit because we're reversing this sales entry. So we'll copy the inventory asset and we're going to put that in B 10, right click and paste 123 and that was for 400. And then we're going to credit something.

And the other side of that usually is cost of goods sold. Once again, cost of goods sold like an expense account, it is an expense account, and it has a debit balance that has a zero because it's been closed out to the equity. It typically only goes up in the debit direction, we're making it go down by crediting it. So we'll copy the cost of goods sold. Right click and copy, scroll back up, and that's going to go into b 11. Right click and paste 123 we'll indent that now going to the Home tab.

Alignment, increase indent, and there's our reversing entry. So this is usually pretty complex for people to kind of get the reversing entry by building it like that. It's easiest to think about, let's record the entry for journal entry, debit accounts receivable, credit, sales, credit and sales, tax payable, debit and cost of goods sold, crediting inventory, and then reverse that. The thing that makes it a little bit more confusing is that we're going to have to jumble up the order in order to put the debits on top the credits on the bottom. In practice, if you want to put the credits on top, just because it mirrors exactly what the other entry was, you can do that it's not it's not exactly wrong. It's just it's just if you're getting picky about the format will be picky about the format.

If a supervisor doesn't like the credits on the other side, then they will not like it if you can justify it by saying that that makes more sense for the reader to be able to see what is happening then they that might be acceptable a computer typically will always put The debits on top and the credits on the bottom just because that's the rules of the system. Okay, so let's go ahead and post this, we're going to say here's the sales, merchandise sales, we're going to scroll down, here's merchandise sales in M 22. So we are in M 22, we're going to say equals and point to that $500. You'll see that it goes up in that in the debit in the debit direction, it's actually kind of going a negative sales here. So it's making our net income actually go down. And this is unusual.

It's very strange at what it should look very unusual. We'll talk a little bit more about why it is we've already discussed it a bit but we'll talk a bit more about why we're doing that after we record it. And then we've got the sales tax payable. Here's the sales tax payable here. Here's the sales tax payable Here we are in M 16. We're going to select equals and point to that 25 bring the balance down from 125 down by 25 to 100.

Then we have the accounts receivable versus the accounts receivable we'll scroll up, we want to be in M four, we are in M for selecting equals, pointing to that 525, bringing the balance down from 11,000 to 74 by 525 to 10,007 49. We then going to record the other side, we've got the inventory asset $400. So here is the inventory asset there, and we are in M five, we're going to select equals and point to that $400, bringing the balance up to 1713. Then we have the cost of goods sold scrolling down the cost of goods sold, here's the cost of goods sold, we are in M 25. We're going to select equals and point to the cost of goods sold. And that brings it up in the credit direction.

Now again, these income statement accounts before we have any activity we have before we've done anything in turn. If sales or expenses are paid for anything or consumed anything, as of the first day of March, we've got these activity in here from the reversing entries. This again, very unusual, and it doesn't really it's not perfect accrual accounting. However, it does help us out to make a systematic way to make these types of adjustments. Meaning if if there's a an invoice that was sent out in March, that should have been in February, we can have a system of our adjusting process to go through there and say, Okay, we're going to look up for our shipping documents in March and see if there's any invoices that we need to pull back and actually record in February before we issue the financial statements, then we'll do that and then we can say okay, instead of me, like deleting the original invoice, which could mess up our billing process and all that kind of thing, because the invoice is tied to the receivable, then what we're going to or instead of us trying to wait And enter the reversing entries as of the exact date and time, we will just reverse all reversing entries as of the first day of the next month.

And that's going to result in this funny looking thing reversed sales. But once the invoice is actually made, this will reverse back out to zero. And within the time period of that month of March, it'll be correct. Therefore, as of the end of March, when we make the financial statements again, this will be zeroed out to zero because this negative sales will match up against the actual sales of the invoice. And we had already recorded this sales in the proper time period in February with the use of reversing entries. So it'll match up and work itself out at the end of the day.

And it'll also make it so we can have that separation between the accounting department and the adjusting process, even if it's done by the same person, but oftentimes it's not. And we don't want our adjusting entries to mess up. What's done on the typical day to day process? It's not good when the Justice Department mixer adjustments, and then the normal accounting departments has questions about these funny things that popped up in in there. So if we do these reversing entries, it will lessen those type of issues those type of timing problems