welcome to our third video in the changing accounting system series this video we will show
exactly how to set up receivables and payables this means we will show you exactly what to do
and exactly how to do it in the previous lesson we discussed how we must enter the individual
receivables and payables transactions before we make our main journal entry and the results of
those receivable and payable transactions must make of the balance that we need it to be in the
trial balance as of the day we transfer over the accounting systems so what exactly do you enter
well the target is to make the open invoice report look exactly correct for each individual invoices
balance so the way to do that is to record the currently relevant transactions and as we
discussed we enter the invoices the payments and the credits all of which that relate to only the
transactions that are listed here on the open invoice report and if we enter them correctly
the ending balance of each individual invoice should match the report from the older system
now the exact steps tell you that you must put the original amount of each invoice that is open as of
the transfer date now that's a very good idea because you want to be able to see for any open
invoice exactly what was purchased exactly when it was purchased and all the details on that invoice
so it is proper to enter the entire invoice as it was a if the invoice is still open and of course
we know we're going to enter any payments that have been applied to those invoices and when you
finish the open invoice report must look exactly as it did in the old file but here's the question
should we enter the full amount of the payments or only the amount of the payment that's been applied
to the currently open invoice in other words if we're entering the entire invoice of all the open
invoices why don't we enter the entire payment of all the payments that have been applied to those
invoices well let's think through an example for a moment let's imagine we have an open invoice
report that has only one invoice on it and let's imagine the invoice was $700 but now is only $500
that's because there was a $200 payment applied to that invoice and that's why that's the only
invoice on the open invoice report here at the end of the usage of the old system and that's
what we have to put in the new system now it was checked number 61 that came from a customer that
gave us the $200 that was applied to that invoice and I can assure you if that was the only check or
if that was the only invoice that that check was applied to then it would make sense to just enter
the invoice in the full amount and to the $200 check and then your open invoice report looks
perfect and the balance would be $500 however check number 61 from the customer was actually a
thousand now the open invoice report is supposed to look like this one invoice for five hundred
dollars and total accounts receivable five hundred dollars but if you enter the full amount of check
number 61 the open invoice report will instead look like this you have the invoice open for
five hundred dollars and then you have the other $800 just floating here on the open invoice report
and it's there on the open invoice report because there's no place to apply it and there's no place
to apply it because the other $800 from check 61 was applied to another invoice that is already
closed and we do not enter closed invoices in the new system only the ones that are open at
the moment we're switching over so what does that mean well it means that there was an 8 extra $800
that we don't know what to do with if we enter the full amount of check 61 now I know what many
of you are thinking and you can read it right here in the top banner should we then enter any of the
closed or paid off invoices for the remainder of the check to be applied to well let's think that
through a minute for a moment ok let's just think if we entered the invoice that the other $800 of
check 61 is applied to let's imagine that that $800 paid invoice number seven and we know that
invoice number seven was paid in full that's why we didn't want it on the open invoice report so
we say okay we'll enter the full amount of check 61 and then we'll take the other 800
and apply it to number seven by entering invoice number seven well I have some bad news invoice
number seven was actually two thousand dollars only eight hundred dollars of the two thousand
was applied from check sixty-one the other 1200 was paid from another check that came from the
customer checked number 76 so should we enter check number 76 well that 1200 was applied from
check number 76 that helped to pay off the full amount of invoice number seven but the problem
is check number 76 was actually three thousand and you see the other 1,800 of check 76 was applied to
another invoice that was already paid off and so on so I think you get the point the point
is that the we follow a rule which declares for each open invoice enter only the payment amount
that has been applied to an open invoice and not necessarily the full amount of the payment
that would avoid the paradox and the loop that we would just stuck in a moment ago now why is
this rule acceptable well past payments have already been reconciled in older than in the
older system so you don't have to worry about having a problem with your bank or not matching
the bank because the last month of the old system is going to be reconciled and those cheques would
be a part of it now you should also consider that if those cheques that we talked about are going to
be part of the new system then you don't have to worry because the main setup journal entry that
we are going to make will automatically account for the differences in the cash account for the
amount of the checks that were that were applied to the closed invoices so we don't have to worry
it would it's already taken to consideration mathematically just enter those checks or those
payments from customers only in the amount that decrease the invoice and not the full amount if
some of that amount has been applied to an invoice that's already closed believe me if
you do it this way your bank reconciliation will work on the very first month of the new system
so exactly how do we find the payments that have been applied to only the open invoices well each
invoice has its own payment history and all you have to do is open up the invoice to see the full
amount of the invoice so that you can re-enter it in the new system and then you can look at
the invoice payment history to see the specific payments and the specific amount of those payments
that have been applied to those open invoices in most very good software like QuickBooks desktop
you can find out all the information you need to input right here from the open invoice report for
example this first one with Allen on top you can double click this $2,900 open invoice and see that
it was actually a $3,900 invoice originally when the window was not stretched open as much but you
can see it was 3900 and payments applied were a thousand even better you can click reports
in the ribbon and then click transaction history and you can actually see a list of every payment
that had been applied to this particular invoice and you can select that payment and click go to
remember it's very important that you click go to and actually see the payment to make
sure that the payment was not applied to any of the invoices that were already closed the same
idea applies to quickbooks online here's the open invoice report or let's say the equivalent open
invoice report in quickbooks online this is the very same invoice if you double click right on
the face of the report you get to the invoice just getting to the invoice is helpful because
you have to physically re-enter this invoice in the new system in the full amount because it is
still opened on the date of transfer but look in QuickBooks Online how easy it is to see all
the payments that have ever been applied to the invoice you're looking for now remember
it's not enough just to see it as the amount you have to click on it and actually keep clicking
until you go to the payment because again you have to reopen the payment window to make sure
that part of the payment was not applied to a closed invoice so that's the way you can make
your list of payments to enter and that's the way you can find out all the information about
the invoices that are still open and you have to enter all of them one by one there
might be special software or you might just pay someone who works very quickly to do data entry
but once these are in your accounts receivable and your accounts payable setup is all finished