QuickBooks is an essential tool that helps businesses stay on track. Making adjustments is an important step in the accounting cycle. This process occurs after preparing the Trial Balance. Adjustments are done at the end of each accounting cycle before preparing financial statements. These necessary entries are made to bring the accounts up to date. These adjustments are entered in QuickBooks Online or QuickBooks Desktop in the Journal using debits and credits. As always, users should consult with their accountant
WHY: Why do we make adjusting entries? We need to record adjustments necessary to bring the accounts up to date at the end of the accounting period. Before financial reports are prepared, the accounts in the reports must be up to date. Adjustments are pivotal in making sure financial statements are accurate and thus state the true financial position of the company.
HOW: These adjustments come in the form of Adjusting Entries in the Journal. Adjusting entries are entered in the QuickBooks Journal using debits and credits. Companies may also maintain their books throughout the year. An accountant will then prepare the adjusting entries at year end.
WHEN: All adjusting entries are dated on the last day of the accounting period. The Trial Balance must first be prepared to verify the accounting system is in balance, listing all the accounts with their debit and credit balances, with total debits equaling total credits.
To make this adjusting entry in QuickBooks online, click + New, select Journal Entry, mark the Adjusting Journal Entry? Checkbox, create the appropriate journal entry, and select Save and Close. You can now view the adjusting entry in certain reports and reverse the entry as needed.
Assuming the accrual basis of accounting is used, types of adjusting entries needed will include prepaid items (insurance, rent), unearned items (services yet to rendered or items not yet provided), accrued expense, and accrued revenues. This includes recording depreciation, amortization, bank/credit card fees or interest. Because the accrual basis records income when earned regardless when payment is received, at year-end there may be revenue that has not been recorded that been earned such as interest revenue. Likewise, the accrual basis records expenses when incurred regardless of when cash is paid. Therefore at year-end, there may be expenses incurred but not yet recorded as interest expense.
For example, we can make an adjusting entry for accrued interest expense, we can make the following adjusting entry in QuickBooks between an expense account and a liability account to show the appropriate balance in the account:
Similarly, adjusting entries for accrued depreciation with a debit to an expense account and credit to accumulated depreciation. To simplify the process, this entry can be made recurring when adjusting throughout the year. Use QuickBooks adjusting entries to make sure your revenue is not too low, expenses are accurately reflected, and most importantly maintain accurate financial reporting so that the financial health of your company is accurately represented.
Resources:
Computer Accounting with QuickBooks 2019, 19th Edition by Donna Kay
HTH & Accounting Associates help organizations and business owners with accounting and/or financial consulting services.
For Help with QuickBooks adjusting entries contact us at accounting@thaddeus.org or call us at 909-599-2111.
Until next time,
John Velasco
