Hello in this presentation we will enter the reversing entry related to unearned revenue into our bookkeeping problem in Excel keeping in mind how the same information might be input into accounting software such as QuickBooks, we will be doing a reversing entry and it is related to the unearned revenue. So we do have to take into consideration in terms of what was the adjusting entry that was originally made, which will we will be reversing. First we're going to take a quick look at QuickBooks and then move to enter this information into Excel. We take a look at the QuickBooks customer balance, we see that we have reversed this negative receivable. This is what the adjusting entry was, which we are now reversing. This is a little bit different than that textbook problem that we typically see for unearned revenue.

In this case, what we're saying is that the unearned revenue was a deposit that we received. We'd received money from a customer and we had to increase cash then and then we credited we couldn't credit revenue, because we haven't yet earned it. And typically in a textbook problem the proper thing under an accrual accounting would be to credit a liability unearned revenue. But in accounting software such as QuickBooks, oftentimes, we actually from a logistic standpoint, will end up debiting or crediting the accounts receivable account with that payment, even though there's no invoice to match it up with, which is technically wrong. However, it works well because then when we get the invoice later, we're able to match it up against the invoice very easily because it's in with our customers section, rather than in this other account that this liability unearned revenue, which isn't tied to our customers and is more difficult for us to tie to our invoice that we will later be issuing for that deposit.

So what we did then is we had This mt, which was a negative receivable, because it was still on the books as of the end of the time period, we needed to make an adjusting entry for it, we needed to take it out of the negative receivable and make it what it should be, which is a positive or a liability of unearned revenue. So that's the adjusting entry we did here as opposed to a textbook problem where we are typically seen here's how much is in unearned revenue. And how much of that unearned revenue has now been earned, taking it out of the unearned revenue and recording it as income that has been earned. So there's a difference between those two plus two types of scenarios two types that will be encountered in practice. So we have here then what we did here on the adjusting entries, what we're trying to do is now reverse this.

Here's the accounts receivable negative receivable and then we made this adjusting entry to get rid of it to bring it back down to zero. And now as of the first day of the next month. We want to get rid of this basically or reverse that with another entry so that we're left with this negative receivable again. Why? Because logistically this negative receivable works well, it just it ran over the timing difference when we made the financial statements, which means we had to adjust it in order to be in a proper accrual basis. But when we actually do the work in our case, deliver the guitar and we record the invoice if we keep this negative amount here in the customer balance, it will match up against the invoice nicely and then it will be correct as of that point in time sometime in March.

Hopefully if we issue the invoice in March, we can do that usually with we usually do whether we are in QuickBooks or any other accounting software, do that with journal entries to do that with debits and credits. That's something that we typically use still use debits and credits even with software. However, it is possible to use the registers to do that in QuickBooks and not use debits and credits. As much I think it's gonna be a little more difficult to do that. But it is possible to do that right now we're going to enter this into Excel using debits and credits. Here we are in Excel, we're going to record this transaction as of three, one the first day of the following period after the financial statements were created, as we do with all of our reversing entries.

Remember, what we have here is we've got the post closing trial balance. And what we're doing is just as of the beginning of the first month, putting in the reversing entries to give us our beginning balances, which will actually include in the temporary accounts of these reversals that we have made before any activity has happened. And so we're going to do the reversing entry related to the unearned revenue adjustment. Before we do that, we'll just take a quick look at the adjusting entry. So we're going to go back over here to the adjusting entry tab. And we're going to scroll down to the bottom on the adjusting entry tab.

We're going down to this adjusting entry. Here's what we did. We recorded unearned revenue. Mainly we increased this liability account by the 300. And we and we increased the accounts receivable increase in this accounts receivable. So again, why would that be the case?

You it's the case because we had a negative receivable meaning in the past we collected money from a customer as a down payment most likely on a guitar. So we got money for work we had not yet done. So usually in a book problem, we would debit this checking account, credit, unearned revenue at that point in time. However, in order to track this in our subsidiary accounts, it's easier not to credit unearned revenue at the point in time of a security deposit but put it into the receivable and then when we get the invoice or deliver or earn the revenue later, we and you know we can match up the later earning the accounts receivable for the invoice to the deposit. So that's going to be the reason we did this. And what we need to do now is reverse this and record the actual liability, that's what we did in the adjusting entry as a positive liability and take it out of this negative receivable.

So that's the adjusting entry we made. Now we're just going to reverse this, we're going to take this back out so that the normal process which works well logistically, although it's not perfectly generally accepted accounting principles can be put back in place, meaning we'll end up with this negative receivable for that one particular customer. Note that this amount isn't a negative receivable, that's a positive or a debit balance of 11 to 74. But for this one particular customer, there's a negative receivable in there, and that's what we are dealing with here. So we'll have that negative we'll reverse this and have that negative receivable for that one particular customer and then when they get the invoice, it'll match itself out. So we're going to reverse this entry.

So here's the debit and the credit accounts receivable and unearned revenue respectively. We're just going to reverse that debiting unearned revenue and crediting accounts receivable. Let's do that. Now we're going to go to the reversing entries tab and we are going to enter this information so here's the 300. In unearned revenue we need to make it to go down. So we're going to do the opposite thing to it, which in this case is a debit.

So we will copy the unearned revenue right click and copy, we're going to put that in B 13. Right click and paste 123 the amount will be $300. We're going to credit something for $300 and that will be going to the receivable so here the accounts receivable, we're going to copy that I'm going to right click and copy. We will put that in cell B 14, right click and paste 123 then we're going to go to the Home tab we're going to go to the alignment group and increase the indenting and then we will record this so we have journalize the journal entry into the journal General Journal for the reversing entry process. Now we will post this out here's the unearned revenue. And here's the unearned revenue here, we want to post it to M 17.

We're going to select equals, and that 300 and enter, bringing the balance down to zero. Here's the accounts receivable. If we scroll up to accounts receivable here it is here, there's something in it, we are in M form, therefore, we will double click on it and go to the end of it and say plus, and then point to that 300 in accounts receivable, bringing the balance down to 10,004 49. So that's going to be the reversing entry. Notice that that's an unusual reversing entry than most book problems will have. There's no effect on net income for that adjustment or the reversal, as opposed to if we were reversing the unearned revenue and trying to see how much we had earned which would be the other would be the revenue or sales account.

So keep that in mind that might be a little bit different than you've. Some people may have seen in a textbook problem, but it is something that does happen in practice just because logistically it works well to track those deposits within the receivable subsidiary ledger.