and now we're going to learn how to change accounting systems with a company that has
accounts receivable and accounts payable so how do we deal with setting up receivables and
payables well if we can imagine we had the same trial balance that we had in the previous video
and the only difference is that we added accounts receivable and accounts payable you cannot include
the balance of accounts receivable or accounts payable in the main journal entry setup and
that's because accounting programs only allow you to change the balances of these two accounts when
you enter individual transactions not when you make a journal entry so you must enter
them one by one until you finish with exactly thirty thousand or exactly what the balance is
in accounts receivable and accounts payable and please understand the reason accounting programs
do that is because they want to make sure that the total balances in the general ledger accounts
are equal to the sum net total of the accounts receivable customer records for each individual
customer and the accounts payable vendor records for each individual vendor that's the reason why
you must enter accounts receivable and accounts payable transactions first and when you finish
the results must equal the balance of what they would be in the chart of accounts and the trial
balance so if you make sure that you finish with the correct balance after entering receivable
and payable transactions you will also notice that as you enter these receivable and payable
transactions other accounts will change as well let's talk about why that is first we'll start
with accounts receivable your goal when you enter the setup transactions for account receivable is
to make sure this report the open invoice report is correct to the last detail and each individual
invoice has the correct balance or the same balance that it had in the old system when it
begins in the new system each individual customers open invoice should have the same amount in the
open balance well how do you accomplish that well the currently relevant transactions that
you have to enter in order to get the open invoice report to look exactly the same as it did at the
moment you finish the old system war or was any open invoice as of the date of the transfer any
payments that have been applied as of the transfer date and of course any credits that have been
applied to the open invoices so what you would do is you would enter them one by one and you
would notice that when you finish if you did it correctly accounts receivable the 30 thousand here
would be equal to this 30 thousand down here which is the total of the open invoice report but you
will also notice that as you record those accounts receivable transactions other accounts will change
usually the other accounts that change will be the service income as you enter those invoices and the
cash as you receive payments so you can imagine that the trial balance would look something like
this if you only entered the currently relevant accounts receivable transactions and of course
it's the same idea for vendors the unpaid bills report is your target when you finish entering
vendor transactions to set up accounts payable each individual bill or each individual bills
balance in the unpaid bill report must be the same as it was when you finished in the old system so
in order to do that you will enter the payables currently relevant transactions and they are any
unpaid bills that you have as of the transfer date any bill payments that have been applied
to those bills as of the transfer date as well as any vendor bill credits that have been applied to
these specific open bills as of the transfer date that is what will get each individual
bills balance to be correct and that is what will get you the total result correctly in the
trial balance for the balance of accounts payable and again when you record the accounts payable
transactions to get the balance of accounts payable to be correct all their accounts are
also going to change as you do that probably the balance of expenses will go up and probably
the balance of cash will go down a little as you record the accounts payable transactions that are
currently relevant now what we're finished with here is the trial balance not as of the transfer
date because we're not finished we have the trial balance after the accounts receivable and the
accounts payable setup so the goal is to enter every currently relevant receivable transaction
every currently relevant payable transaction and then the result is something like what you would
see here an incomplete trial balance but we call this trial balance the trial balance after the
accounts receivable and accounts payable setup many of you probably already figured out that the
main journal entry we are going to make is simply the difference between the to trial balances so
simply take the trial balance that is your goal to set up which means the balances should be correct
as of the transfer date and subtract the numbers in the trial balance directly after the accounts
receivable and accounts payable setup and those differences will give you the amounts you need
for your main setup journal entry I'm going to show that to you momentarily but just to remind
you again if you have any trouble making journal entries you can take the course called accounting
journal entries for kids and that will help you understand what we're about to do you also should
know some basic spreadsheets because that will make calculating the amount of the journal entry
much easier however you don't have to really know anything just watch what I'm about to do in Excel
now I'm very hopeful that you remember that these were the original numbers and the first trial
balance that I showed you at the beginning of the video and I hope you remember that these are the
numbers from a moment ago after finishing setting up receivables and payables now all you have to
do is subtract the two and even if you've never seen an Excel spreadsheet before it's perfect for
this task I'm simply going to tell Excel that the money amount of the main journal entry is
equal to well let's back up a little let's say how much should we adjust cash well the amount
will adjust cash is equal to the original amount of cash that we actually have to have in the
account when we finish minus the amount that was there leftover after the accounts receivable and
accounts payable setup so $21,000 debit is what we would need to put to cash in order to make it the
$50,000 balance so that it's the same balance as of the transfer date now we could do that one by
one to each individual number but luckily Excel comes with this little box here in the corner
of the cursor which is called the fill handle if you just click there and drag it down it'll make
the corresponding mathematical equation to each of the individual cells in fact if you copy it
over you can even get it to do the same formula I'm just doing a shortcut rather than typing in
this same formula into every single cell to get the difference of every single account I simply
use the fill handle now these numbers are the numbers that you would use for your main journal
entry setup and after you put in these numbers in one big fat journal entry the results will be
your new system has all the correct numbers after the transfer date so if you were transferring to
QuickBooks desktop you would click company make general journal entry and don't worry about this
and then again you would choose the account name and then you would put the debit amount choose
the account name put the credit amount and so on and it would all come from these amounts here you
would put the name on the row and put the debit amount put the name on the row and put the credit
amount if were you were using QuickBooks Online then instead you would just go to the plus sign
in QuickBooks Online and go over to journal entry and you would get a window that basically looks
just like the journal entry window on the desktop you would click for the pull down account choose
the account put the debit choose the next account what did you ever wanted it we're not allowed to
do that one but choose another account put the credit and so on and begin it would all come
from what you see in the Excel spreadsheet for the calculated journal entry amounts