Quickbooks, Bookkeeping and Accounting Blog

Accrual based businesses generally need to make a number of adjustments before closing their books at year-end. Different businesses make different decisions as to exactly what to accrue, but whenever an expense is incurred in one year for which the benefit won’t be received until the next year, or revenue is received in one year for products or services that won’t be delivered until the next year, then one should consider whether or not to make an accrual adjustment.

 Some things to consider:

• Payroll: if your pay period crosses the year, then you probably want to accrue those payroll expenses actually incurred through the end of the year. 
• Insurance: insurance expenses are often paid annually or semi-annually, so it is common for businesses to incur expenses for insurance in one year for which the actual benefit won’t be received until the following year.
• Rent: rent is often paid ahead of time. If you enter a bill in QuickBooks dated January 1 and pay this bill in December, than no adjusting entry is necessary. However, if you simply pay for rent via a check, then an adjusting entry may be necessary.
• Subscriptions: subscriptions are often paid annually, so adjusting entries may be worth considering. However, only consider an adjusting entry if the expense is high enough to justfiy the time. It makes no difference what year a $30 magazine subscription shows up in.
• Revenue: revenue items requiring adjusting entries vary greatly for different businesses. Consider service fees such as an annual support payment for a software product or annual fees for snowplowing or a lawn service.

Making adjusting entries in QuickBooks is simple:

• From the Company tab, select “Make General Journal Entries…”
• Set the date as the last day of the year.
• Select the appropriate expense or revenue account and then enter the correct amount as a credit or debit per the below:
  • for expenses already paid but not yet incurred, enter the amount as a credit.
  • for expenses not paid but already incurred (assuming you have not already entered a bill in QuickBooks), enter the amount as a debit.
  • for revenue already received but not yet earned, enter the amount as a debit.
  • for revenue already earned but not yet received (assuming you have not already entered an invoice in QuickBooks), enter the amount as a credit.
•  Select either Deferred Revenue or Deferred Expense on the second line of the journal entry.
• After saving, you must reverse the entry effective the first day of the following year.  QuickBooks makes this easy:
  • simply go back into the entry (do so by clicking “Previous”) and click “Reverse”
  • save and you are done.

I hope this is useful with respect to thinking about adjusting entries you might make for your business. You should check with your accountant to see exactly what types of entries apply to your business.