 QuickBooks Online 2024. Record short-term investment in stocks and bonds. Get ready and some trail mix because we're hiking on QuickBooks Online, our audit trail to success. Here we are in our Get Great Guitars 2024 QuickBooks Online sample company file. Let's open up our major financial statement reports like we're gonna do every time. Reports on the left-hand side in the favorites. We're gonna be right-clicking on that balance sheet report to open link in new tab. On the profit and loss report, right-click open link in a new tab. And in the trial balance, right-click open link in a new tab. If you don't have that trial balance in the favorites, you can type it in up top. But I think it deserves to be there. So that's where I put it. We can tab to the right then close up the hamburger. We're in 2024. Let's just do the whole month of January, going from 01.01.24 to 01.31.24. Running that report. Let's tab to the right, close up the hamburger and change that range again. 01.01.24 tab. 01.31.24 tab. We'll run it to refresh it, nothing currently in the P&L, otherwise known as the profit and loss report. Tabbing to the right, closing up the hamburger. First, a word from our sponsor. Yeah, actually we're sponsoring ourselves on this one, because apparently the merchandisers, they don't wanna be seen with us. But that's okay, whatever. Because our merchandise is better than their stupid stuff anyways. Like our Accounting Rocks product line. If you're not crunching cords using Excel, you're doing it wrong. A must-have product. Because the fact as everyone knows of accounting being one of the highest forms of artistic expression, means accountants have a requirement, the obligation, a duty, to share the tools necessary to properly channel the creative muse. And the muse, she rarely speaks more clearly than through the beautiful symmetry of spreadsheets. So get the shirt, because the creative muse, she could use a new pair of shoes. If you would like a commercial-free experience, consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com. One more time for the month of January, 2024. Oh, one, oh, one, two, four, tab, 1231, two, four, tab. We will run it to refresh it. Let's go back to the balance sheet tab and just recap real quick what we've done thus far in the prior section. We laid down those foundational items necessary to then be able to process our normal accounting system, the normal accounting system, including the entering of financial journal entries, which are done with the forms here broken out by cycle, customer vendor and employee. We did those foundational things, usually found under the cog dropdown, including your company information, and then the lists, including the general ledger and the products and services, and then or the chart of accounts and the products and services. And then we put in place our beginning balances, imagining that we were pulling our information in from a prior accounting system so that we have our balance sheet accounts ready to go as of the current year that we're doing work in January of 2024 and nothing's on the income statement. Then we wanted to imagine that we're entering those transactions often done when you start a new company or possibly done when you're increasing or leveling up the company, in which case you need financing oftentimes. You need cash. Why do you need cash? Because many businesses are gonna need an upfront investment in machinery and equipment, property, plants and equipment, as well as inventory to get going. So the question is then, how are we gonna finance the investments? How do we finance the purchase of the assets? Not the asset is cash, but the asset of an investment type is property, plants and equipment, as well as possibly the inventory. Well, there's a couple of ways we could do it. We could do it either with the liability, meaning we take out a loan possibly. So we get cash, increase cash. The other side goes to the liability or we can do it some way of equity if it's a sole proprietor. We can put the money in ourselves. We can take on somebody else. We can take on a partnership possibly that puts money in. So now we have two equity owners. If it was a corporation, we might issue stocks, for example. So we talked about those two things last time. Now we wanna think about having our cash. We have our cash now before we take this fairly substantial amount of cash that we now have and do what we want to do with it, which is to purchase inventory and the property, plant and equipment. If we're holding it for a short period of time, we might put it in some kind of investments such as stocks and bonds so we can get some type of return on it in the interim before we use it. Now I wanna make a distinction here that normally if you're looking at a company file, say your business file for a sole proprietor like this one, if we sell guitars, we're not gonna have a lot of cash on hand in investments. If we had a whole lot of cash just in the checking account, that's not typically good for investment purposes. We should want to put that cash to work or at least part of it, possibly investing in things like stocks and bonds and whatnot. And we possibly wouldn't want to invest in stocks and bonds within the company file if it's not a company file set up to invest in stocks and bonds. In other words, our goal for this business is to sell guitars and generate revenue with guitar sales and later we'll have guitar lessons and whatnot. The goal of this business is not to generate revenue through investments. So if we have a lot of money that we've accumulated possibly through the sales and we want to invest it instead of investing it in the company through the purchase of property, plants and equipment and inventory rather invested in stocks and bonds, the typical way we would do that is to distribute it to the owners if it's a sole proprietor in the form of a draw, if it's a corporation in the form of dividends and then the owners can invest it in the stocks and bonds on their own, possibly using QuickBooks to kind of track the overall stock and bond in there as well. But on the personal side, we have a separation in other words between the business goals here which in our case is selling guitars and the personal investment goals and whatnot which would include the stocks and bonds. So that's the general setup. However, if it's a short-term investment we have some cash that we're going to sell shortly or use shortly to buy stuff, property, plants and equipment, inventory then maybe we wanna park it or just put it in an investment for a short period of time. As we do that, we can kind of compare how you might use QuickBooks as well on the personal side of things. So you could use QuickBooks for your personal accounts as well in a similar fashion. It's the same kind of idea. It's just that your goal is different on the personal side, not necessarily revenue generation but rather to live well, right? But you still have a balance sheet and an income statement set up on the personal side. So you might be tracking things like investment in stocks and bonds in your personal QuickBooks file but typically you want to have them separate. Now that leads to one more discussion I wanna point out here in that with QuickBooks online unlike the desktop, if I want two files, possibly one for my personal and one for my business, it's gonna cost more because I have to buy two separate accounts. So some people that have a small company it might benefit you to try to combine them together which most people will recommend against. It's not the thing that you typically wanna do from a bookkeeping side of things especially if you are a bookkeeper it becomes difficult to try to manage someone's books when they've combined the two things together because then you have to determine what things they spend on our business or personal. However, it's possible to do with the use of class tracking and in that way what will happen is on the income statement or profit and loss which is the statement necessary for tax preparation for small businesses on the schedule C. You're gonna create your schedule C using the profit and loss. Then what you can do is you can use class tracking which will break out the income by personal versus business. So that's just something I wanna point out that we have courses on that or sections on that if you wanna dive into that concept a little bit more in the future. If you're a small business and you're like I would like to use QuickBooks for both personal and the business and see if I can break out my income over here for my schedule C using class tracking or something like that, you can check that out. Okay, that said, we're gonna go back on over here and we're going to take some of our money and we're gonna put it into stocks and bonds meaning we're gonna go to something like a Vanguard or E-Trade or whatever and let's imagine that we're purchasing stocks and bonds for a short period of time. What's gonna happen when we do that money's gonna come out of the checking account and it's gonna go into, we're gonna call it a current asset because we expect not to be holding on to the stocks and bonds very long but just for a short time and then we're gonna sell them so that we can purchase property, plant and equipment. Now I'm not gonna go into a lot of rules on the generally accepted accounting principles and so on for short-term and long-term investing but we'll go over some of the concepts here. So let's first make that transfer. So I'm gonna go on over, I'm gonna say that this is gonna be, I think there's a couple of ways we can do this. We could go into the plus button here and you might say, is there a form that is related to us taking money out of the checking account and putting it into the investment account? There's not a form specifically designed for that, why? Because that's not something that happens all the time in our normal accounting cycle. So if it's not something that happens all the time, the next question is, well, is cash affected? Because if cash is affected, I can use my normal cash forms which means a decrease in cash would be an expense form typically and an increase in cash being a bank deposit or possibly I can use a transfer if I wanna set up the new account as another bank account or if I was putting it into like a savings account. So in this case, money's coming out of the checking account so we could go into an expense form. So an expense form is a little bit deceiving in the name because we're not always gonna be applying it to an expense, in this case, we would be decreasing the checking account, this would be going to the checking and the other side would be increasing the other account which would be an asset account that we will set up which will be a short-term investment account. All right, so let's close that out. Now note that I'm not gonna use that because it would be easier oftentimes to use if I'm doing a register format. So I might use the bank feeds which we'll talk more about in the future course or section and as the transaction goes through because it would most likely be an electronic transfer, I can record it that way which it'll possibly still use an expense form or I can use the register which I think is a little faster. So let's do the register. Let's go into the transactions and then I'm gonna go into the chart of accounts on the right and then here we have our accounts. I could use either register of either accounts impacted because they're both balance sheet accounts so we've got a bank account register and we don't have an account for short-term investments. So I could create an account here for the short-term investments by going to the new button up top and I can make it an asset and an other current asset but I'm gonna make it this time as we go as we do the data input. So I'm gonna close this back out and let's use the register for the checking account because that's the account that we would probably first think about if cash is going down and I'm putting investments in something. So I can then select the dropdown and say that we want, let's say an expense form which is kind of like a check form without the check number. Let's say it happened on 010424, let's say and then it's gonna be paid to who is it gonna be paid to? We're gonna say, let's say Vanguard, boom, I'm not sure, did I spell Vanguard? Let's do that. And then I'm gonna say investments in stocks and bonds. Let's say we're putting it, let's imagine we're putting it into some kind of mutual fund or something and we're gonna say 12,000. 12,000 is going in there. So I don't have the other side set up. So what's the other side gonna be? Well, it's gonna be an asset account. Notice I can set up an account on the fly as we're going, in other words, going to the plus button up top and it's gonna be, I could make it a bank account if it was like a savings account that we're putting it into but if I did that, I would most likely use a transfer form. In our case, I'm just gonna make it an other current asset. And bad debts, investment, investments, other. And I'm gonna say investments, let's say, and we're gonna say short term investments and short term stocks, let's say, and bonds. Just so it'll be clear of what we're thinking here. It's not gonna be a sub-account of anything. We'll set it up like that. So let's go ahead and that's all we really need. So let's say save it and there it is. So what's this gonna do? Decrease the checking account. The other side's gonna go into that new account that we set up short term stocks and bonds, investments, so let's go okay. And then let's go to the balance sheet and run it again. So if I scroll down, we can see then in the checking account we have then in the checking, let's check out the checking. We've got a decrease of the 12,000. Notice it used an expense form even though we entered it into the register. And if I go into that account, we can see that it is an expense form and they just put the other side to the investment account which isn't an expense, it's an asset. So don't get confused, the expense form just means that basically you're decreasing the checking account or possibly you're increasing the credit card account depending on how you're using it. That's what I mean, it's like a check. It's just like a check form but without the check number because it's most likely an electronic transfer. Okay, let's go back up and back. The other side went into the investments. So there's our 12,000 in the investments. And that looks good. So there it is there. And that's the two sides of the transaction. Once again, nothinging yet, nothinging happening to the income statement. So nothinging happening there. Okay, nothing's happening there. So now just note with this investment right here. There's a couple of issues with investments. I just wanna point out, you might not see it as much in your business companies but if you're using QuickBooks on the personal side of things for small businesses and then the personal, you're gonna run into these kind of issues. How do you track the investments? Note that if you have multiple investments in different areas, you probably do not want to be tracking every single stock and bond that you're putting money into. If you have different stocks and bonds or even different mutual funds that you're putting money into, you probably want to group them together by groups of some kind. QuickBooks is not designed as a software to track everything that's happening as the value of stocks go up and down and all of the detail. There's other softwares you can use to do that and you can also use just whoever you purchase the investment from, in this case like Vanguard or eTrade, their website to help judge the performance of the stocks that you have from time to time. What does QuickBooks do? It summarizes the information so you can see it in a comprehensive format for your financial statements. So what kind of groupings might you use then? Well, if you invest in stocks and bonds, you might group them, for example, by bonds versus stocks, for example. That's one way that you might group it. Now that can be difficult sometimes because a lot of people on the personal side will be investing in target funds which have both stocks and bonds mixed in it and that's the point, right? And that's often recommended to do for many people to just do the target fund, get the best mix that you can in the investment and let it lie. Well, if that's the case then you might want to enter your investments as short-term investments or current investments, those being ones that are not under an umbrella of an IRA or a 401K or some kind of retirement plan because if it's under the umbrella of an IRA 401K or retirement plan, you can't take it out until retirement. So therefore you might just say, I'm gonna put those ones in long-term investments and then the short-term investments will be those, if this was a personal account, those that are not under the umbrella. Why? Because you can take the money out if by selling them fairly quickly. That would be another strategy you might use on the personal investment side. Now the other issue we have with the investments is that the investments are gonna change in value over time. So notice with accounting, we have this problem of should I record things at cost or should I record them at fair market value? In the United States, usually things with like property, plants and equipment we record at depreciated cost, meaning we put the item, let's imagine it was a building because I think that's the easiest one to think about. If we had a building, we put it on the books at what we've paid for, even if we financed it. So whatever the cost of the building was. And then we depreciate it, which is us trying to account for the decrease in the value of the building. However, the building might not go down in value because for whatever reason it might actually go up in value. So you might say, well what we should do is adjust the building for the current value of the building. But the problem with doing that with property, plants and equipment, similar thing with a car, right? We're gonna depreciate the car. But you might say, the car might not go down that much or maybe it turns into a classic and it goes up in value or something. You shouldn't just use a depreciation method because you're not just consuming the car. It really has a different value that you can estimate or something like that using some kind of appraisal process. However, the appraisal process is not gonna be perfect. That's the point. If it was a building or a car, each building and car are unique because you could have abused the car versus someone else that treated it well, those are two completely different cars, right? So you can't really, it's hard to come up with the current value of a car and that's why the depreciated cost is a more conservative thing to do generally because I'm gonna just apply my cost out over the useful life and I'm not gonna worry so much on the fluctuations on the market possibly. So you can argue one way or the other with that but that's the idea here. With the investments, it's a little different though because if you're investing in publicly traded stocks, investing on a market, the beauty of stocks are that they're all the same. They're standardized units and they're being traded every day on the stock exchange. So that means it's not like a building where every stock is unique. They're completely the same. So that means all the stocks are the same. So that means that you can determine with a high level of accuracy what the current value of the stocks are, at least if you don't sell a whole bunch of them at one time, right? If you're Warren Buffett or something and you try to sell your entire holdings, well, the stocks aren't really worth that much, right? Because he's so powerful that he actually has, like if you were Facebook and you were an owner of Facebook and you had a lot of stocks and you tried to sell them off, then it's not actually worth that much because the stocks will go down in value as you sell them, right? But if you don't have all that much of stocks, then of course you can determine the value of the stocks because they're actually currently trading on the stock market. So that means every time you get a bank statement or a stock statement, it's actually gonna give you the fair market value as of the point in time that you've received it, which you can kind of depend on, at least as of that point in time. It will still fluctuate, but you can kind of say, well, that's what it was at that point in time because that's what they were selling for. So that means that you might want to adjust this number periodically, possibly monthly, quarterly, or yearly, based on the stock statements and then you can increase the value if it went up, decrease the value if it went down. You could do that with a journal entry possibly periodically. Where should the other side of the transaction go? Well, you could put it into equity, but that usually confuses people. So most people just put it on the income statement and that's the easy thing to do because the income statement closes out to the balance sheet. Where should it go on the income statement? Typically at the bottom of the income statement is where most people would want to do it because it's not part of your normal income. It's like other income. So that means I'm gonna put it at the bottom as other unearned income. And I would do that one because it's not my normal income source. And two, even if it were my normal income source, I haven't earned it yet because I haven't sold the stock. So the stock could still go down in value. So it's earnings that I haven't really captured yet by selling the stock, right? So I would put it on the other. So we'll talk more about that later a little bit when we sell the stock. One more thing I just want to, or a couple more things to point out on the stocks. One is that you can also, you might wanna track the cost of the stock that you put in and then also track the change in the stock value. So we put 12,000 in. I might put a subsidiary account here to track the increases and decreases so that I can see the cost as well as the gains and losses thus far as time passes. And that can help you to get an idea if you sold the stock, what your capital gains and losses might be. So you might make like a parent account and then have these two underneath it or you might make another account just to be a subsidiary account of this one to track the increases and decreases and keep the cost the same. Just an idea, a little bit more complex to do that, but it gives you a little bit more detail. And one more thing or another couple of things. If you have multiple investments, you might wanna make a parent account of investments in stocks and bonds, possibly a short-term and long-term, or one that's not under the umbrella of an IRA or retirement plan and one that's long-term that is, and then list your stocks and bonds possibly by institution, E-Trade, Vanguard or whatever underneath it, or list out if possible by your investment types, bonds versus stocks, for example. But you don't wanna get too detailed in QuickBooks. Now also just realize that there are other softwares out there that could actually pull in your ending balances. Remember that QuickBooks connects to financial institutions like the checking account and we can use bank feeds from the checking account. You can also connect to many of the financial institutions where you have your investments, like possibly like you might have your investments through your bank account, the same institution. However, it's not gonna give you exactly the proper ending balance at any given time because QuickBooks is designed to record the transactions. So for example, the checking account, we're not just getting the ending balance on the checking account as of January 31st, for example, if we pull in the information from the bank. What we're getting is the detail, that's what we want from an accounting standpoint so that we can create the books because we need the other side of the transaction. That's gonna help us to construct the income statement. Whereas some other software, you can even use Excel I think at these days, could just pull in the ending balances from your institutions. So you can connect financial software to your financial institutions and pull in just the ending balances. So the ending balances in your checking account, the ending balances in your Vanguard or E-Trade account, the ending balances in your loan accounts, anything that has a financial in the checking account or I mean in the credit card account, anything that's connected to a financial institution. So that's great. You can use that in conjunction with QuickBooks because that will give you the actual ending balances at any given time. What it will not do is give you an income statement because it's not actually giving you the detail of what has happened. It's not recording transactions. It's just telling you where you are at a given point in time, not based on your bookkeeping but based on the financial institutions end result, right? So just a couple of things to think about on that. All right, so this is where we're standing at this point in time. Nothing's on the income statement. Let's go on over to the trial balance over here and let's run it again. So the trial balance is just the balance sheet on top of the income statement. So we have the, if your numbers tie out to these numbers, great. If they do not try increasing the date range and see if it's a date issue. If it is a date issue, drill down on that number, drill down to the form, possibly change the date. Okay, so we have the asset accounts, checking accounts receivable inventory and now we have the investments as part of the asset accounts. We've got the contra asset account of accumulated depreciation decreasing the asset and in particular decreasing the property, planting equipment or fixed assets of the furniture and expenses. Then we've got the liability accounts, payable visa that we owe the visa to, loan payable current portion. I think I spelled that right. And then we have the equity section where we have the owner's investment, the money that we put in in this period and then the owner's equity, nothing's on the income statement. Thus far, this owner's equity representing the accumulation of earnings prior to us using this accounting system that went through the income statement generally and then ended up on the balance sheet of the earnings that have accumulated over the life of the business which we have not yet distributed in our case in the form of dividends if it was, I mean in our case as a sole proprietorship and the form of draws if it was a corporation, it would have been in the form of dividends. It might also include the investments that we would close out possibly to that equity account.