QuickBooks Online 2022 Balance Sheet report overview, get ready because it’s go time with QuickBooks Online 2022. Online in our browser typing in QuickBooks Online test drive, going into the test drive and then selecting the United States version and verifying that we’re not a robot. I also clicked on some pictures of a taxicab.
Now we’re in the sample company Craig’s design and landscaping holding ctrl scroll up just a bit to get to that one to 5%. We’re also going to have the free 30 day trial version open, just so we could take a look at the Business View as opposed to the accounting view. If you don’t have access to this at this time, that’s okay, we’ll be using it more in the second half of the course, back to Craig’s design and landscaping services,
we want to take a look at one of those favorite financial statements that being the balance sheet, but I’d like to open three reports balance sheet income statement and the trial balance to do so let’s go to the tab up top right click on it, we’re going to duplicate the tab, go back to the tab to the left, right click and duplicate it again, back to the tab to the left again, right click on it and duplicate it.
Again, we’re going to be looking at the balance sheet, the income statement. And then I’m also going to open up the trial balance, which in essence is the balance sheet on top of the income statement. Let’s go down to the reports on the left hand side reports on the left hand side opening up one of our major reports, that being the balance sheet report.
So we’ll select that item. Now this is one of our major to financial statement reports, can I change the date range up top a 101, a 101 to one to 1231 to one and run it, close the hamburger go to the tab to the right. Going to go down to the reports.
Again, we’re going to be opening up this time the PnL profit loss which also can be called the income statement, the other major financial statement report range change from Oh 101 to one to 1231 to one, run that report, close up the hamburger, go to the tab to the right and then go down to the reports again, this time opening up the trial balance by typing in up top trial balance,
the trial balance is going to be basically the balance sheet on top of the income statement range change up top once again from a 101 to one to 22 I got a tab for 1231 to one, run it and then close up the hamburger. And the first tab, I’m going to be opening up the chart of accounts. I’m going to scroll down to the accounting area. And we’re going to be taking a look at the chart of accounts that we have seen in a prior presentation.
Now remember, when you look at the financial statements you want to think about when you look at the reports in total, we want to think about balance sheet and then income statement as our major two reports, which also can be thought of as basically the trial balance. In essence, having the balance sheet accounts without the subtotals on top of the income statement accounts without the subtotals then those two statements are basically being constructed from the underlying chart of accounts here, which is the basis on which we lie our financial transactions,
the financial transactions being everything that we do with this new button. Typically, these being the basic financial statement of transactions, which are recording items to our major financial statements, every other statement pretty much is going to be a supporting statement of some line item or multiple line items on the balance sheet and the income statement.
So let’s look at the balance sheet. And it’s going to be a highly important report. And we can think about it as a point in time. So you can see the date is going to be a little bit different on the balance sheet than the income statement.
Because it’s as of a point in time this is showing us where we stand this is here. Now this is the here now report as of this point, the income statement if we go over to the profit and loss or income statement, I will use those terms interchangeably, then you’ll notice Do you have a range of time because this is showing performance over a range of time. So the balance sheet is showing us where we are the income statement is giving us some idea of how you know how we got to the current point in time.
We’ll talk about the income statement more at a later point. So the balance sheet represents then the assets, liabilities and equity to think about those. Let’s try to close everything up. I’m going to close all these little carrots up from the inside out or at least I’m going to try to so I’m going to close this carrot, I’m going to close this caret I’m going to close this caret and call it a triangle.
And then I’m going to close all of the assets. And then I’m going to close the liabilities from the inside out. Close them up from the inside out. We’re going to close them up close them up. Okay, so there we go, that I didn’t do the equity, the equity down here closing up all the equity and then closing that up.
So what do we have there? That’s called our accounting equation assets equal liabilities plus equity. assets representing what the company has. And the reason that company has them as assets is to help generate revenue into the future. That’s why the company has the assets. So if you’re talking about a normal company,
like one that does landscaping, then the reason they’re holding on to the assets in the company and not distributing them to the owner, is because those assets are going to be expected to generate revenue in the future. And usually, those assets are not just going to be cash sitting on the books or even short term investments unless they’re a financial type of company, because they’re going to be investing the assets into things like property, plant equipment, and inventory, those things being invested into,
because it’s hoped that they will help generate revenue into the future. So the assets are what the company has the liability you could think of as the flip side of the coin. They’re basically the same coin, one side other side, the liabilities and equity represent who has claim to those assets, the liabilities, third parties, people like the bank, people like the creditors, the credit card companies, and so on, are payables that we owe,
and then equity, which represents the owner, the owner will be different depending on the type of entity entity we are. But we know what the owner is, it’s the it’s the owners of the company. So for sole proprietorship, it would be one person, therefore, the entire equity would be pretty straightforward as one account, you could think of it, which would be the equity in total.
But if it’s a partnership, now you’ve got the added problem of equity be broken up into two partners, because if you think about it, this is assets minus liabilities equals equity, equity is the net worth in the company, at least on a book value, which now needs to be broken up into two or more partners in a partnership. So tracking the equity accounts in a partnership is something that you got to you got to be careful of. Whereas if you’re a sole proprietorship, then it’s fairly straightforward.
So if you’re a sole proprietorship, and you’re thinking about, for example, do I want to hire someone as an equity partner in the firm, or do I want to just hire contractors, which I pay either a contractor or an employee, he, then you’ve got the pros and cons and the complication of splitting the equity, which is can be, you know, kind of, you know, you’ve got to make sure that you have the route,
what you want to do down that everyone’s on the same page and everything, versus dealing with payroll, possibly, and that kind of stuff. So in any case, and then if you go to a corporation, now you have all the all the equity, broken out into units, standardized units of equity, which then can be owned those units being called shares. So now the equity is broken out into common stock, and the common stock is being distributed, not in terms of a partnership agreement, but rather in terms of the ownership,
how many shares are owned, and the shares are kind of standardized units. But you can think about equity as a total, as the owners claim to the assets as opposed to third party claims, which would be the liabilities. And then you got to dig deeper in terms of who is equity? Who are the owners? And how is that going to be split up on that section? So if we were to open this up, then let’s open them up one by one, the assets, the things that the company has, and again, why does the company have them not.
So they can have a big, you know, big thing a big safe with money in it. So someone like Uncle Scrooge can dive into a pile of money or something like that? No, because that would mean that you’re not using the money to generate revenue. The reason you have the assets in the company is to do in this case, landscaping work or to plan for landscaping work in the future so that that money can be used to create something to generate revenue in the future.
Otherwise, you would give it to the owner, who might then have a big thing of money that they swim in or something. But in any case, we’re going to go to the bank accounts up top. So these are going to be the bank type of accounts where we have the checking account and the savings accounts. Now note, let’s point out some differences in terms of financial terminology.
And in terms of QuickBooks kind of terminology. If you talk about assets in general, that’s a normal balance sheet financial statement terminology. Current Assets is a normal balance sheet terminology that means their assets they’re going to be more liquid type of assets, rather than long term assets or property, plant and equipment. And then the bank accounts, however, is not a normal financial statement terminology,
usually the financial statement terminology we’ll just call it cash, or cash and cash equivalents. So why do we have these checks are these bank accounts terms, because for QuickBooks, when you look at the chart of accounts, if I jump back over to the chart of accounts, they need these account type of the bank accounts because from a software standpoint, they have a special need.
That special need for example, is to connect to financial institutions, possibly having bank feeds related to them. And so that means you’re gonna have to special drop down and also note that you got this neat drop down those drop downs We’ll be there, because it’s a special sub accounts type. So we’re gonna have a drop down for every financial kind of category assets, and then current assets.
And we’re gonna have a drop down for every account type, which could be more of a software thing like bank accounts, as opposed to just cash and cash equivalents, then we have the sub account of the total bank accounts.
So every time we have a different account type, they’re going to have a sub account, which again, is not necessarily what you would expect to see on financial reporting, you would generally just have cash and cash equivalents on financial reporting grouped into one account, basically on a balance sheet, then you’ve got the accounts receivable, which is an accrual account by definition.
So that means that you would only be using it if you basically invoice people. In other words, you do work before you get paid, and you have to track the outstanding accounts receivable. Once again, it would only be under current assets, but it has its own drop down here. The reason being is because it’s got its own special account.
If I jump back over to the ledger, here, we got our own account type. So it’s not just an current asset account, which would be a financial account category, but rather, it is in its own accounts receivable, which seems quite redundant, given the fact that now you have this drop down when most companies only have one accounts receivable, although you might have an allowance account that you could be dealing with as well.
So that the reason it is doing that is because they have a special need for the accounts receivable that need be in the sub ledgers, which is going to break this information down not only by General Ledger, in other words, transaction report by date, but also by who owes you the money. So the sub account reports are going to be breaking out the accounts receivable by customer in some way, shape or form.
So again, it looks quite redundant, having three lines here, which on a normal balance sheet would be one line, if it was just accounts receivable unless there was an allowance account. And then we’ve got everything else that is an other current asset or a current assets, that doesn’t fall into the cat a specialized category that has a special software need. And that’s going to be the inventory assets.
And the undeposited funds, noting undeposited funds is also account that you an account, you wouldn’t expect to see on a on a balance sheet that was for external use. Because that undeposited funds would be included in up here typically not under bank accounts, but in cash and cash equivalents.
So notice, if you were given this for external reporting usage, you might clean it up a little bit, because these accounts are probably, you know, they’re basically more designed for the ease of bookkeeping uses, and can be used for external reporting purposes, but not necessarily in the perfect formatting for external reporting purposes. Why is this account down here when it’s basically a cash account, because it basically represents money that you’re holding on to cheques or cash,
or something like credit card payments that have not gone to the bank yet, because its first accounting system needs, it doesn’t act like a checking account, you’re not going to be connecting undeposited funds to a bank account,
and having bank feeds and whatnot. So it acts like from a software perspective, and other current asset type of activity, that can be a little tricky, because when we look at say the statement of cash flows, we’re gonna have to take this number into consideration when we when we think about that type of report in our total cash in general. So then we’ve got our fixed assets down here.
Fixed assets could also be called what we got notice that now we got the total current assets, and then the total current assets here, right there. So that’s that is a financial statement accounts subcategory that’s normal.
Then we’ve got the fixed assets, which could also be called property, plant and equipment, which you might see on financial statements, or PP, and E. You could also hear them called depreciable assets.
Typical categories under this area would include things like equipment, building, land, furniture, furniture and fixture. So if I opened this up, we’ve got the included truck, which is probably not the most common, you know, it’s kind of a, you know, not not not as broad a category, you probably call it automobiles or something like that.
But in any case, we’ve got the truck here, and we’ve got the original cost. Now, this is a pretty simplified fixed asset, carrot category, because you might have multiple different things in here, you might have, of course, multiple vehicles, you might have then multiple pieces of equipment that you had to capitalize.
And the idea here being an accrual concept, in that you have to put something on the books as an asset, even if you paid for cash, for example, for something like a building, if you paid $100,000 for a building, then you wouldn’t expense it even if you paid cash for it. You’d have to deviate from a cash basis to an accrual basis,
putting it on the books as a fixed asset and then depreciated over the life of the fixed asset and even If you’re on a cash basis, some accrual concepts you can’t get away from you can’t. Because on the tax side of things, they’re going to force you to do that. So you won’t be able to just just expense the building unless at least a tax code will allow you to do it on a tax side if there’s some special depreciation that you could use or whatever.
But so that’s one thing that you’re going to have to basically do a accrual kind of concept for. And that means every transaction that you have that’s over a certain dollar amount, you’re probably going to want to think, okay, is this going to be supplies? Is it an expense, or is it something that I have to capitalize, put it on the books as an asset, and then depreciate it over time.
So we’ll talk more about that in future presentations. But then we that total assets. And also just note that you’ll have another account here called accumulated depreciation, typically, which will, which will be the reduction in the depreciation and we’ll talk more about that when we get to the accounts for the adjusting entries. So let’s close up.
That’s all the liabilities that we have here. So we got all the liabilities, let’s go into I’m sorry, that’s all the assets, let’s go into the liabilities and equity starting with the liabilities.
This means outside people that we owe money to broken out into two main categories, current liabilities and long term liabilities, those are both categories, we would expect to see in normal financial statement reporting, current liabilities being those liabilities that are due within a year, it’s a pretty arbitrary cutoff.
But it’s an important distinction, because we want to be able to compare the current liabilities to the assets that we have to pay them. So if we got a whole lot of liabilities that are becoming due within a year, and we don’t have enough current assets to pay them, then we’re we may have a liquidity problem, we may not be able to be solvent, we might not be able to pay our debts.
So if I go into the current liabilities, then we have the close these up, we’ve got the accounts payable, the accounts payable, like the accounts receivable in financial statement reporting would just be another category in this case of current liabilities, the accounts receivable would just be a current asset.
But for QuickBooks, this is a special account with special needs. So from a software perspective, we’re not just going to call it an other current liability. If I go back into our chart of accounts, on the liability side of things, we’re going to call it a special account in and of its own type, which is going to be accounts payable. So it’s an account payable type of account.
And that means it’s got a drop down. And it’s got a subtotal, which is quite redundant, given the fact that you only have one account, which normally would be under current liabilities, because of that kind of special need. And what QuickBooks will do is force you every time you post something to the accounts payable to also record something to the vendor.
So QuickBooks can create a sub ledger for you. And then we’ve got the credit cards. Now the credit cards once again, under normal financial statement reporting would probably be just called like credit card payable or something like that. But here we have their own category, because their special needs with regards to the credit card, because you might link them to the financial institution for the bank feeds.
And so if I go back on over here, we don’t just call them other current liability types, special credit card type of accounts, and they can be linked to bank accounts, which we will do when we get to the bank feeds.
So again, we got this redundant kind of thing, credit cards, and then the credit card statements, and then the total credit cards. And then we’ve got other current liabilities, everything else that doesn’t have a special need from a software perspective, that is an other current liability from a financial statement perspective, is then put down here as an other current liability type of account.
And then we got the long term liabilities, which oftentimes it’s going to be some type of loan loans kind of have their special needs too, because you might have one loan that has a short term portion and a long term portion, noting that current liabilities represent those that are due within the next year. Long term liabilities are those that are due after that point.
What if you have an installment loan that you pay monthly, but it’s like 20 years out that you don’t pay it off for you’ve got a short term and long term portion we’ll have to deal with breaking that out.
We’ll talk about that in the adjusting entries section. So that gives us our total liabilities and then we’ve got the equity section representing the owners claims to the assets and the major categories down here. There’s going to be the retained earnings and the net income. Now the retained earnings is is a category that is usually only used for a corporation S corp, C Corp.
But QuickBooks when you just set up the company file, if you don’t change the name of it, they’re going to use retained earnings. And that is what it sounds like. It’s basically the earnings of the company that have been retained. In other words, you have not yet given them back out to the owner in the form of if it was a sole proprietorship draw or if a partnership draws, or if it was a corporation dividends.
So it’s the earnings that have accumulated upwards which have not yet been distributed out. The net income is something that you would not expect to see on a balance sheet for external reporting use, what QuickBooks is trying to do is basically put that line item in the balance sheet, so that you can see that the balance sheet is connected to the income statement.
So they’re kind of making an equity section in the in the balance sheet, it can, it can be nice, but it can also be a problem. Because if it was a partnership, for example, that we’re talking about, then I would have to allocate that net income to multiple capital accounts.
And if I have this net income line down here, it looks funny. But in any case, like for example, if I change the date up top, and we change this to one date up, it’s going to change that, it’s what’s going to happen is this, this net income is going to roll into retained earnings, because that’s where it should be reported. Because the net income is part of the equity section in an equity. So let’s do that. If I go, Oh, 101, to two to 1231 to two, for example, and run it, run it,
I was running Gennai. If I scroll down, then now now it rolled it up into net income, and then it put this up, this is what happened in the following year. So it rolled it up basically into net income. Now you also have this opening balance equity accounts. That account is is like the QuickBooks way of saying, hey, look, we didn’t know where to put this number. And it usually is put in place when you first start the company file.
So when you set up the company file, if you’re setting up something from scratch, and you’re saying, hey, look, I know that I have some of these accounts up top, I’ve got something in the checking account, I’m just going to add it to the checking account, I’ve got something in the savings account, I’m just going to add it there,
I don’t know where to put the other side, I’m just going to put it into opening balance, then QuickBooks will dump the other side into this opening balance equity account, which is basically QuickBooks way of saying, hey, look, I need to reconcile, I don’t know where to put the other side, I’m going to put it into opening balance equity. So what we will do when we start a new company file, then what we’ll do is we’ll enter the beginning balances, we’ll see how this opening balance equity works.
And then we’ll do an adjustment taking the money out of opening balance equity, and putting it into the property a proper equity account, like retained earnings, possibly, so that it looks a little bit more professional. So we don’t have this equity is opening balance equity account, which basically,
I mean, if you give someone a report that has something in opening balance equity, it makes you look like I would make someone suspicious that things aren’t done up to up to par prompt possibly because that’s not you know, that’s kind of account, that’s a plug account. So if I go back up top, and I go back to the old 101, to one to 1231 to one and run it I was run on and scroll back down, then we can see that this 167646 is going to be connected to the income statement.
So if I go to the income statement, bottom line of the income statement is that that one, if I get all the way it comes scrolling slow 167646, that number is tied into the balance sheet. So the income statement is related to the balance sheet. So in other words, if I think about this in terms of my assets, liabilities and equity, assets, liabilities and equity,
like this, then the the the income, the equity, you can also think about this accounting equation as assets minus liabilities equals equity, which would represent kind of like the book value of the company, meaning the amount of the company the worth of the company that would be allocated to the owners. If you think about that, that’s kind of like the bottom line, you can think about the value of the company.
And then the income statement tells us the story of how we got to that bottom line, meaning we’re going to take it a year back, we’re going to go a year back and see how how far we got meaning where were we in terms of our equity before the year. And then here’s our performance over the timeframe how far we went and how far we drove the car. And then how many miles we drove within a year and represents the net income climbing kind of upwards.
That’s kind of a metaphor that we’ll use here. It’s a little more complicated than that. But that’s the general point balance sheet is where we are at the equity section you can think of is like the bottom line of the balance sheet assets minus liability, the worth of the of the company in essence on a book value, and then the income statement is looking a year back to look at performance.
Where were we a year ago? How did we get from that place to the current place? That’s the income statement, which we’ll look at next time. Also just note that if we go to the chart of accounts here, this chart of accounts, you can see you can see we have a long Chart of Account counted, you can kind of determine which of these accounts are we actually using all the accounts that are up top down to equity, or the our balance sheet accounts.
And you can kind of determine all the ones that have the view registered down to equity and everything after that is income statement, you can kind of determine then which accounts are you using, that have been used to populate the balance sheet up top, and which which accounts are on your chart of accounts that aren’t being used aren’t being populated, because there aren’t any financial transactions that are being recorded to them. And it’s easier to see that to some degree on the trial balance over here.
On the trial balance, you got the same thing, except we don’t have any of the subtotals. So assets, assets, assets, assets, assets, liabilities, liabilities, liabilities, liabilities, equity, and then debt equity, and then down to the income statement, income statement down below.
So that’s the balance sheet on top of the income statement is basically the trial balance. And it gets a little funny, you might have said, Hey, where’s the retained earnings and what’s going on with that difference between and that’s because when we put the trial balance together, you’re breaking out the equity section.
Between the performance that happened in the year that net income is being broken out further into into income and expenses. So we’ll talk more about the income statement and in a later presentation