QuickBooks Online 2021. write checks for expenses and prepaid assets. Let’s get into it with Intuit QuickBooks Online 2021. Here we are in our get great guitars practice file, we’re now going to take a look at some common expenses and prepaid assets expenditures. So to do this, let’s open up our forms first. And to do that, we’re going to be duplicating our tabs up top, right click in the tab, duplicate this tab, we’re going to make three tabs this time, going back up top right clicking again, duplicate again, right click, and again, duplicate again.
00:35
And we’re going to be making the good old trial balance and then like the balance sheet, or this would be the income statement, and then the balance sheet. So let’s go to the trial balance tab, we’re going to open up the reports on the left hand side, bottom left hand side, we’re going to be typing up top into the find area for a trial balance, searching the trial balance, there it is, and we’ll pick that up range, change it up top and date 1231 to one, and then run that report,
01:06
I’m going to close the burger, hold down Control, update up a little bit, to get to that one to five, then we’re going to go to the second tab, opening up the PnL the profit and loss by going to the reports on the left hand side, opening up that P and L report the profit and loss report range, changing it up top to the endpoint of 1231 to one running it closing the burger. And so there’s our profit and loss, then we’ll go to the first tab. And we’re going to be opening up the balance sheet go into the reports at the bottom of this one, open it up the good old balance sheet balance sheet range, change up top and point at 1231 to one and run it close the old hamburger.
01:52
And now we’re going to be entering some kind of expenses that you might think normal kind of month end expenses and some prepaid expenses, we’re going to start with actually the expenditure of insurance. Before we do so let’s take a quick look at the flowchart which is going to be on the desktop version. You don’t need the desktop version to follow along, but it has this nice flowchart on it. So we just want to visualize the flow chart. We’re up here and basically the vendors section at this point in time.
02:15
And we’re going to be thinking about entering then kind of bills and standard kind of expenditures decreases to then the cash, you could do this a couple different ways. One, you can enter all your bills into basically the inter bills area, which would increase the accounts payable, sort the bills and then pay the bills over here decreasing the accounts payable, and then recording basically the check or kind of decrease to the checking account type of form with a pay bill form.
02:42
This is often what you’ll do in larger type of companies so that you can enter the bill as soon as possible, which will more likely be closer to the point in time that you consume the service. And then simply organize those bills and pay the bills basically as late as possible, which will typically be their standard cash management strategy. We’ll do that more in the second month of operations.
03:02
For the first month of operations, we’re just going to simply basically write a check form either a check form or an expense form. Now logistically, we then think Well, how do we want to do that, because these aren’t tied to anything else, we might just simply use the check form, or the expense form, or we might go to the register and just enter it into the register, which is oftentimes going to be a little bit faster.
03:25
Also, if you have bank feeds on many of these types of month in type of expenditures like a phone bill and utility bills, and those kinds of things can be automated to some degree because they will be repetitive and the bank feeds will work quite well then in those circumstances as well. And you can kind of set up the bank feeds, which would be similar to to entering something kind of in the register.
03:46
In other words, you might wait till it actually clears the bank with an electronic payment of some kind, use the bank fee to record the expenditure in the similar way the bank feed then creating what would basically be a check form or Expense Type of form. Let’s go back on over then. So we’re going to back here and we’re in our balance sheet. Now the first one’s going to be a little bit more confusing, because it’s going to be insurance, and we’re going to imagine we’re paying for the insurance for an entire year.
04:11
Now note that insurance is going to be the primary example whenever you hear something called the prepaid type of expense, because by the nature of insurance, it’s the one thing or it is one thing at least or one of the most important things for a business in which you always pay for it before you get the actual service.
04:29
Now more and more, there’s going to be a lot more things that are designed this way as well, like application type of services, for example, QuickBooks, possibly, you know, you pay for it upfront, and you might pay for a year’s worth of service that you’re not going to get until the future. Well what you should do on that then is put it on the books not as an expense when you pay for it, but rather on the books as an asset and then extend it over the time period that you’re going to consume it or use it because that way when you look at your income statement, let’s jump on over to the income statement.
05:00
When you look at your income statement, then if I was to say compare one month to the next month, and I paid for all of a year’s worth of services for, say insurance or say for an application like QuickBooks or something in the first month in January, and I compared it to February, February would look like I did better than January when I didn’t really do better because I bought something in January that I consumed and used in February. So that’s why the accrual basis is it’s kind of better for that comparative a fair comparison from month to month.
05:33
And the way we would do it on accrual basis is we would put it on the books as an asset, and then allocate the expense over the time periods usually do an adjusting entries at the end of the period, that would work bad that would be benefiting from it. So then logistically, you got to think, Okay, well, if I’m buying insurance, does it make sense for me to use an accrual basis, or should I just use a cash basis Should I just write it off, because that would be the easy thing to do?
05:57
Should I just write it off, when I when I get it, that’s going to be the decision that you kind of have to make, if you’re paying for insurance on a month to month basis, then you know, you might just write it off month a month, and it’s gonna be good enough, most likely. But if you’re paying for like a year’s worth of insurance, you might want to put it on the books as an asset and do this kind of allocation method, which does take a little bit more work.
06:18
Also note that you might be thinking about the year end type of information for these type of accrual or prepayment type of transactions as well. Whatever you need to do at the end of the year, with regards to tax preparation, or taxes, you want to keep in mind as well. So you might just expense the whole thing and then tell your accountant Hey, there’s some prepaid items here, adjust for it if you need to, when you do the tax preparation at the end of the year, or more traditionally, when we do the adjusting entries, we’ll put everything into prepaid assets until till the account to do an adjusting entry at the end of the year or the end of the month to record the amount of the prepaid assets that have been consumed.
06:59
So we’re going to do that because that’s kind of a normal accounting that you should do. On an accrual basis, we’ll put the prepaid insurance on the books as an asset, and then we’ll do an adjusting entry at the end of the month, when we get to the adjusting entry process to allocate out one month’s worth of the years insurance that we’re seeing that we paid this time, going back to the first tab, then when we pay the insurance, there’s a couple ways we could do it, we might actually have a check form, if we’re writing a check in some way shape, or form the expense form, which is another form that decreases the checking account, but doesn’t have a check number in essence, or we could put it basically into the register.
07:34
And the register would basically do the same to kind of forms but in a sort of shorter fashion. Let’s do the first one with a standard check form. So I’m going to go to the check form here, we’ll open up the standard check. And I’m going to say that we’re going to be paying, I’m just going to come up with a generic insurance company name, safe insurance company tab, it’s going to come out of the checking account tab. And then I’m going to call it a vendor that is a vendor.
08:03
And we’re going to do this on the 28th, we’re gonna say the 28th, I’m hitting the plus button to get up there, I’m just hitting plus. So that’s one way you can kind of navigate, make it a little faster with the keys. And this is going to be 105. Okay. And then going down to the categorization. Now they probably have an insurance expense, there’s the insurance expense. But because I’m paying for an entire year’s worth of insurance, it would be more proper for me to put it into prepaid insurance and then expensive, you could tell this as an expense account because it says expense over here. So what I’m going to do is I’m going to say no,
08:38
I’m going to put it into prepaid insurance, I’m going to make a new account called prepaid insurance insurance tab. And we’re going to set that up and it’s not going to be an expense account, but an other current asset account, we’re putting it on the balance sheet. This is a similar process that you do by the way for like equipment, when you buy a large vehicle. Similar same concept, you bought a big thing that’s going to going to benefit multiple periods in the future.
09:04
So you should allocate the cost over multiple periods to the future. So in any case, this is going to be then other not other long term asset, this is going to be an other current acid, other current asset, other current asset, okay, other current asset, we want to pick up then a payable or a prepaid expense, we’ll say prepaid expenses, and then I’m going to call it prepaid insurance, prepaid insurance.
09:31
Okay, save it, close it, and tabbing this out. We could say this is for years of insurance, you might want to put the end date of the policy date on it there or show the term or range of the policy that is being covered because that can help with the accrual journal entry or the adjusting entry at the end of the month. We’re going to keep it there though. And this is going to be for 11,000. We’re saying 11,000. And that’s it. What’s this going to do? To check, it’s going to decrease the cash checking account, other side go into the prepaid account an asset rather than an expense of prepaid insurance.
10:10
If we were to print the check, we can click this item here. If we are handwriting the check, then of course, we want it in the checkbook. But we want the check number to line up with the cheque number up here, and we’re just recording it in the system. If we’re doing this from the bank statements, then again, if it was an actual check, we want the check number to basically line up as we enter it into the system there as well. So we’re going to then save it and close it, and then we’ll check it out. So save and close, come on over the balance sheet, flushing it up.
10:39
So we’re working with fresh stuff, go down checking account, scrolling down to the end of it 11,000, there’s the 11,000. Other side, let’s go and backup back to the to the balance sheet. And then we have a prepaid insurance. There it is on the books, it didn’t affect the income statement at all. It’s all here under prepaid insurance, when will it affect the income statement, when we do adjusting entries, we will do so monthly.
11:05
So we’ll see the adjusting entry which will allocate one 12th of this to the first month, which is covered back up top, back to the to the balance sheet. Next, we’re going to write a check for office supplies. And we’re going to have some kind of decrease to the checking account for office supplies.
11:22
Now when we think of office supplies, we’re going to write a check that’s or do a decrease to the checking account checking account going down other side once again, we might then put it into office supplies as an asset. And then see how much of those office supplies we use monthly, kind of like we would with inventory, and then decrease the asset and record the expense periodically. So you might do that if the office supplies are significant.
11:45
So if you’re talking about like medical supplies or something like that, then you basically want to track them in a similar fashion as you would with the inventory. However, if you’re talking small office supplies, like you bought a year’s worth of paperclips or something probably not worth your time to put it on the books as an asset. And then and then do that allocation because it does take more time to do so. So we’re simply going to expense the office supplies purchased here.
12:08
So we’re going to go to the first tab, and I’m going to hit the drop down. Now if it was a check, we could use the check form. If it’s just another kind of expenditure, like an electronic transfer or something, we bought it online or something like that, we can use the expense form. Or we can find either of these forms in a more quick kind of fetching in the register. This time, I’m going to use the expense form, just to switch things up, because we would like to spice things up over here.
12:33
And then we’re going to say this is going to staples, which is like an office supply store. staples tab, and we will add it as a vendor coming out of the checking account, the 128 payment method we’re going to say then is going to be I’ll try to add a new one here, I’m going to add a new one just say electronic payment of some kind.
12:57
This is a credit note, it’s not a credit card. And so we’ll see that reference permit and then tags. So category, I’m going to go hit the category drop down. And we want them to have office supplies. Let’s see if we have some kind of supplies, I’m going to type in supplies here. And they have job supplies and office supplies and software. That’s the one I want office supplies and software. And I might say you know, I like that account. And notice when you enter the first month of information, then you’re kind of setting the tone for the rest of the time here period.
13:30
So my goal here is to see if I could find account that QuickBooks gave me since QuickBooks set up the chart of accounts that fits in by default all go and use that one. But if I want to tweak the name a little bit, then maybe I tweak a name, for example, this one, office supplies and software, maybe I want to break that out, maybe I want I’d like to know my office supplies that is not software. And then I’d want to break out my software separately. Personally, I would like that better.
13:54
I would like to break out my internet basically separately, then software and supplies as well. So what I’m going to do is I’m going to say let’s let’s go to my chart of accounts and just adjust that I don’t want to add a new account because it’ll have like multiple supplies. But let’s add another let’s let’s adjust that account. So I’m going to duplicate this tab up top and say I you know, I’d like it to look a little bit better since this is my first month. And this is the foundation on which everything will be built.
14:23
So you know the foundation shouldn’t be should be on like not on sand, like rocks. We need some kind of submit base for the foundation. So we’re going to scroll down. And we’re going to we’re going to look for that supplies. So here it is. Here’s the supplies one, I’m going to edit that one and edit that. And I’m just going to call it office supplies, office supplies and then save that one. And this other one had jobs supplies on it and I’m not sure I want job supplies either.
14:55
So once you go through this chart of accounts a couple times then you could you might want to like deal. leads or make inactive some of these accounts as well. So for example, this job supplies, I don’t think I’m going to use that. So I’d rather get rid of it now. So it doesn’t kind of mess me up when I look up supplies. So I’m just going to go ahead and make that inactive, make it inactive, don’t want it around. So then I’m going to go back to the first tab. And I’m going to close this out. And let’s try it. Let’s see what we got. Then again, I’m going to say supplies.
15:28
And now we just got office supplies. That’s what we want. That’s what I want to call it here. And then we’re gonna say this was for 500. There it is, I’m not going to assign a customer, I’m not going to make it billable at least I want to make an invoice from this expense in a similar way that we did with when we purchase the inventory from the purchase order and then made a expense item with it. So this of course, once again, will decrease the checking account the other side, now going to an income account called office supplies expense account.
15:55
So we’re gonna say save and close an expense account on the income statement. So what I’m trying to say. So then I’m going to go to the first tab here, this is the balance sheet, let’s freshen it up again, fresh, and then go into that checking account. Down at the bottom of the checking account, we got our check, there’s the 11,000. Well, there’s the prepaid There’s our 500 for the expense, the other side is going to an expense account. So let’s go back up again.
16:20
Well, that’s the type of transaction and expense type of transaction, the expense account is office supplies. Okay, let’s go back on up back to the balance sheet. Let’s go to the next tab over which is the P and L the profit and loss, let’s freshen it up, heat that thing up. And then we’re going to go down and we’re on the office supplies. There’s the 500 right there going into it, there’s our office supplies on that one. So that looks good. Let’s go back to the to the income statement.
16:49
Next one’s going to be utilities, that’s going to be a fairly straightforward item, right, we’re just going to decrease the checking account, the other side is going to go to utilities expense down here. So I’m going to go back on up top. And let’s make this one. And this time, let’s use the register to do the same thing, but we’ll use the register. So just to mix things up, just to mix it up. And we’re going to go down here and I’m going to go into the checking account, use the register, close up the burger, and then we have this drop down with the check. So we can either use a check form again, same kind of thing. But now with a quicker input or the expense form, it’s here as well, let’s start with check form.
17:28
So we’ll have to check form, this is going to be I’m hitting the plus button to get up to that 128 again, so 128, I’m going to say tab, and then the check number still populates automatically. And this is going to go to Edison, Edison who we pay for our electric company, we don’t have it set up yet. So I’m going to say tab. And then I’m going to set it up as a vendor quick setup, electric bill, we should we could put a memo to explain the electric bill but I’m not going to.
17:56
And this is going to be 620. And then the other account, we’re going to set up and note in the second month of operations, once we have already done this one time, these accounts might populate for us, which will make the data input lot easier in the second month of operation. So that’s that’s why when you do it the first time you kind of want to set it up properly or set it up well.
18:16
And if you’re taking over someone else’s bookkeeping that they’ve done already, then you want to be consistent going forward. So if you feel like you need to make changes, just do so sparingly, you probably want to start off with the same system, and then kind of Win win your way on to changes. So you still have that consistency in there. So but in any case, because that gives you the comparison from time to time. So anyway, we’re gonna go down to the utilities, utilities.
18:43
Also note that you have some discretion over, like how many expense accounts you want to have, because the income statement, you can kind of think of it as broken down to just two accounts, income and expense, you could put all the expenses, like into one account, but that would that would be to to non non detailed, right. And then you can also go way overboard on the detailed information too. So some people like to have like a sub account for every sub account.
19:07
And you know, and the income statement gets really long. So and that becomes burdensome as well just to do and it’s burdensome to look at if you’re if it’s too long. So something like the Edison bill, for example, you could write another account and say I want to break out my electric company, and say I want the electric bill or the electric expense versus another utility bill might be then the gas bill. And you might include the phone bill, which used to be included in utilities until it got so big that it deserved its own spot. And you might do that here.
19:39
So usually utilities now stands for oftentimes, what the water possibly, and then the electric and the gas possibly. But if you’re in a company that uses a lot of electric, then you might say, hey, I want to track the electric separately because it’s really important to my particular business. So I’m going to break that out on my own so that you have some business Question of course, to do that, but I would first look at the standard accounts that are set up by QuickBooks, and see if that fits your needs.
20:08
And if it does not, then go on to, to something that’s going to be more descriptive. So I’m going to go ahead and save that. And then let’s go in and check it out, again, back to our report balance sheet, run it. So we’re fresh, and then go into the checking account. Bottom of the checking account, we now have the utility there it is, if I go into it, does it take me to the register?
20:29
No, it does not, it’s gonna take me once it thinks about it a little bit to a check form. So it takes me to a check form, even though we entered it into the register. And so I’m going to close this back out, scroll back up top, go back to the balance sheet. And then I’m going to go to the PnL profit loss next tab over and run that report to freshen it up. So it’s nice and hot. And we’re going to go down, there’s a utility, there’s the 620. So there’s that one, and then I’m going to go back on up.
21:00
So there’s the utility bill. Next one we’re going to enter is the phone bill, which is quite common for most businesses, we’re going to go back up top once again, I’m going to enter this into the register, which we found by going to the accounting tab on the left hand side, and we go into the banking account, use the register. But this time, instead of a check form, we’re going to go to the register and expense form here, which is basically the same thing without a check number type of form, I’m going to hit the plus button till we get up to that 128. Right there.
21:31
And then I’m going to say that this will be going to Verizon, that’s what we pay for our, our phone company. That’s our phone company. Verizon, we might switch though, because we’ve been offered some different deals, we like to switch back and forth to take advantage of the best clans and whatnot. But we’re going to go to the payment then. And this is going to be for 360 360.
21:55
And then the other side, once again, you could put it to like utilities here if you wanted to group them all together. But traditionally, now the telephone is going to be broken out. So we’re going to type in telephone, and I bet they have a telephone. They don’t they don’t have a telephone. Let me check it out. Again, I it’s Unbelievable. Unbelievable. So it looks like they’re kind of planning for the telephone that go into the utilities.
22:17
But telephones kind of important to me. So I feel like it should be broken out. And so I’m going to say I’m going to add an account, QuickBooks accounts are not sufficient, I’m going to add a new one here called tele bone. And note, you even might go into more detail. If you have different areas where you have a phone bill in different offices and whatnot, you might have a parent company, then that says telephone, and then sub sub accounts for each location, you could do that.
22:42
Or they might use classes in that case and break it out by class, which will have two column income statements. And we’ll talk a little bit more about classes after the practice problem because it’s kind of a more detailed spot or area. But we’ll get into that a little bit. It’s interesting, interesting area, we’re going to make this an expense here, we’re going to add, we’re going to add a account, it’s going to be an expense type of account. So where is the expense, there it is, it’s at the bottom, it’s an order, that makes sense. So then it’s going to be an expense type of account.
23:15
And we had, I’ll just calling other business expenses. That’s fine. It’s telephone. That’s the one. Let’s save it. Let’s close it. And that looks good. And let’s close the hamburger. So I can see the Save button. So there’s the Save button so I can save it. And then let’s check it out. Let’s go back up to the balance sheet, scroll up top, run the report, and then go into the checking account. scroll on down and there’s our telephone bill right there, the 360. So the 360 is there scrolling back up top, back to the balance sheet. Let’s then go to the PnL the profit and loss report and freshen it up. And then we scroll down. There’s our telephone.
24:01
There’s the 360 on that one. So there we have it. Now it’s nice to go to the trial balance on these ones because there’s both a balance sheet and income statement side. So I’m going to go to the next tab over. And so run this report. And then we could see the checking account that is affected. And then we could see these expense accounts that are affected down below. So the trial balance once again, good report to be looking at especially when you have both balance sheet and income statement items affected by the forms that you are entering.
24:27
Now also note that after you enter the first couple months of information, if I go to the Chart of Accounts tab that we set up, the expenses that were given to us down here have been given to us by basically QuickBooks when we set it up. So I would go through and enter data for the first month or two. And then you might go through these expense accounts and say hey, look,
24:46
I haven’t been using you know some of these accounts. And and then once again, make them inactive so that you can have you know you don’t have too much information when you go back from your chart of accounts to your other data. Keep it nice and tight. Nice and easy. Look at so you might want to go in here and just change or just the chart of accounts. So general rule, when you’re entering data, especially on the expenses, you’re going to say, is there an expense that that is already here that lines up to what I want to do? If so use it. If it’s if there is, but you don’t like the wording of it or the name of it,
25:19
I would not make a new account in that case, but go do what we did before, go into the account, edit it, and then and then adjust the name to what you want it to be. And then if there is no account that does anything that you want to do, like we did with the telephone company, then of course add the accounts necessary. second month as we enter the expenses should be a lot easier because once again, it’ll kind of save the data that we did in the first month.