 QuickBooks Online 2024. Trial Balance Report. Get ready because we don't just do data input, we get totally into it with Intuitz. QuickBooks Online 2024. Here we are online in our browser searching for QuickBooks Online Test Drive looking for the result that has Intuit.com and the URL Intuit being the owner of QuickBooks, selecting the United States version of the software and verifying that we're not a robot. Opening up the major two financial statement reports like we do every time. We have the reports on the left hand side. We're in the favorites. We're going to be opening up the balance sheet, right clicking on it to open link in a new tab, right clicking on the profit and loss to open the link in a new tab. Let's go to that middle tab, close up that hamburger and change the range up top from 010123 Tab to 03123 Tab. Run into refreshing, tab into the right end and close in the hamburger and then we'll change that range again. 010123 Tab, 123123 Tab. Run it to refresh it remembering that the balance sheet income statement or profit and loss report, same report, different name are the two major financial statement reports. All other reports typically giving more information about one or multiple line items on these two major financial statement reports. Let's go back to the tab to the left and go down to the reports. Once again, close in the hamburger. We're going to go all the way down to the accounting reports, which is where we've been hanging out for the last couple presentations. We went through all of the reports or just an overview of the reports that are in here. Those typically being first a word from our sponsor. Yeah, actually, we're sponsoring ourselves on this one because apparently the merchandisers, they don't want to be seen with us. But, but that's okay, whatever, because our merchandise is better than their stupid stuff. 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If you would like a commercial free experience, consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com. A repeat of some of the major financial statement reports, balance sheet and income statement that are already up top, those being reports that you're pretty much going to give to someone every time you're giving anyone reports. Generally, if you want to give them a perspective of your financial statements, because of those are the two financial statement reports. But we also have reports down here that could have debits and credits related to them, the idea being that the debits and credits might be something of interest to the accountant as opposed to like others that want to see the reports in a accounting equation format such as is the format of the balance sheet and the income statement. And we also have some reports here that are just those long type of reports like we saw in prior presentations with the general ledger, the journal report and the transaction detail reports and the transaction list by date report. Now we want to take a look at the trial balance and look at the trial balance. It gets no respect. It's like Rodney Dangerfield, no respect down here. This trial balance is an important report, very useful even from the bookkeeping standpoint. So I would recommend possibly taking a look at the trial balance, possibly using it as you're doing your data input. You can find it up top a lot more easily by of course you can make it your favorite, which I would recommend doing that'll pull it up into your favorites up top. I think it deserves to be up there. So there we have it. You can also simply type in up top the trial balance and find it that way as well. But we would like to open it in a new tab. So it would be nice if it was in the favorites. So I can right click on it right up top and then open the link in a new tab, which is nice. And then I could just pull that to the right. So why is this, why is this report useful? Let's do a range change again before I get into it. Oh, one, oh, one, two, three, tab, 12, three, one, two, three, tab, run it to refresh it. So this report is useful because you can think of it as an as opposed to in this case, this is an exception to the rule type of report like some of these in the accountant section are this report not giving more information about one particular line item on the balance sheet and income statement. It's actually giving less information about the entire balance sheet and income statement. In other words, if I look at the balance sheet and the income statement, I have all of the accounts here on the balance sheet and the income statement that have activity in it, which, which remember that the accounts are coming from the chart of accounts. So we set up our chart of accounts over here. If we think about the construction of the financial statements, the chart of accounts being in the transactions tab, one place you can find it, and then the chart of accounts. So there's our chart of accounts. And these are the accounts that are going to be used to post transactions to we post transactions with the forms. Here are our forms. As we saw in the journal report, every form will basically have a journal entry. Every journal entry can be seen as either a debit and credit format or an accounting equation format. And it's going to affect at least two accounts, possibly more than two accounts. So if you were thinking about constructing the financial statements from scratch, you would think about these forms as creating basically journal entries in a debit and credit format debit and credits being more efficient, easier to use than a plus and minus format. And then we would use these journal entries to construct a trial balance, the trial balance being the bare bones before we convert it to a plus and minus format. So now we have a trial balance in debit and credit format that we can think of as being constructed from all the journal entries created by the forms. And then what happens if you were to build this from scratch is you would then take the trial balance and convert it from a debit and credit format to an accounting equation format. So now these are all of the accounts that have been used in the period from the from the general ledger that have activity within it. And then on the balance sheet on the income statement, we convert it to an accounting equation format and add subtotal. So you can see once again, the balance sheet is not in debit and credit format. If I hide all of these, you can see it's in the format of assets equal liabilities plus equity. That is not necessarily because assets equal liabilities plus equity is more efficient a way to look at the financial statements, but rather because that's the way people that don't really know the debits and credits can look at it the easiest way the debits and credits are actually easier tool to build the financial statement. That's why they're used. So now we're putting it in this equation format, which kind of is a is a similar concept of a double entry accounting system being represented in a different way. Not only that, but we also have the subtotals in here. So now all of the accounts are in here. But we also have subtotals like the bank accounts under the current assets, accounts receivable, other current assets, the fixed assets and then in the liabilities, we got the current liabilities, the credit card, other current liabilities, long term liabilities, and the equity, each of them having subtotals. How does the income statement fit into this system? We saw before that when we talked about the balance sheet and the income statement that net income is coming from the income statement. And you can think of as basically the timing component breaking out a portion of the equity section, the equity section being the net or book value of the company, that the equity being the claim of the owner to the business. So if we see performance, then on the income statement, income and expenses are really kind of part of equity. If you were thinking about a transaction from an accounting equation standpoint, assets, equal liabilities plus equity, everything on the income statement is part of equity, right? You can further break out the equity to income and expenses, which are part of the accounting equation because it's all part of equity. All right, so that's the general idea. But you have all these subtotals, these are pretty long reports. If you just look at the trial balance, then you have the balance sheet on top of the income statement because it's in order of the accounting equation, assets, liabilities, equity, income, and then expense, but you don't have all the subtotals in here. And, and it's in debit and credit format. So this way, if I was doing data input, if I was using this first tab to enter my transactions, like invoices, bills, checks, expense forms, and so on. And then I want to verify that the transactions have done what I think it should do. Then normally when I do that, it's not like I'm going into the balance sheet and seeing, okay, I know that cash was affected. Does that mean that my total assets are correct or that my total bank accounts are correct? No, I'm only going to be looking at the balance in the checking account to see if that was impacted. All these totals are not necessary when I'm doing that type of work. Therefore, instead of having these two reports open, it would be easier and more efficient simply to have your trial balance open, which still has the checking account, as you can see, and that I can drill down on it just like I would in the balance sheet to get that transaction detail, which is typically what I'm looking for when I'm doing my internal accounting information. So if I go back, then you can see it's in order. You've got your, your cash accounts up top. So you've got your cash, your asset accounts. And then you have to kind of see where the liabilities will start. That's what's a little bit tricky about it. And you kind of have to kind of know that the order of the balance, it's at the balance sheet on top of the income statement. So the balance sheet is in order by the accounting equation, assets, and then liabilities start at accounts payable. They're going to be basically credit balances. And then the equity is going to be down here starting at the opening balance equity and so on. And then you've got your income statement, which is going to be the services income in this case. And, and then we're going to get down to the expenses, income cost to goods sold and expenses. So you can see the bottom line of the trial balance is in balance, not by assets equal liabilities plus equity, although that's the case as well, but by the fact that the total debits are equaling the total credits, that's the general idea. So you can use this as a tool as you do your data input. And if you have a transaction that impacts both the balance sheet and the income statement, like an invoice, for example, then you don't need to go to two different forms. I could say, did that impact accounts receivable? Like I think it should, I could just go to my trial balance and drill into the detail of the AR and see the detail in here. Then I can go back to my trial balance and go down to the bottom of it to look at the income type line items to see if it affected my sales or revenue transactions on the bottom of the trial balance like I think it should do. So that's going to be a lot easier, more efficient. It's a smaller report due to the fact that we don't have all the subtotals. This report's probably about as long as the income statement over here is, and this is only half the report, right? Because of all the subtotals, you got to scroll through all this. Whereas here, it's a little bit shorter, a lot shorter than the two reports added together and it's got both the balances in it. Now, a couple things to understand on the trial balance. First of all, if you don't fully understand the debits and credits, that's okay. You can still use it for this purpose, right? But also, you can use it to better understand the debits and credits as well. If we think about how the balance sheet and the income statement work together, if I go to the balance sheet over here, you'll recall that we have assets are what the company owns, liabilities are third party claims like the bank to the assets that are owned, and the equity is what the owner has claimed to. And this is usually the most confusing part for most people. Remember that the equity will be different depending on, and I say remember because we talked about this on the balance sheet side of things, depending on the type of entity, sole proprietorship, partnership, corporation. If you're a sole proprietor, retained earnings is not exactly the proper term. You would think that you would call it a capital account or something like that owner's equity. If it was a partnership, you would have multiple partners, capital accounts. If it's a corporation, then you would have retained earnings. But the concept of closing out the income statement to the balance sheet is the same. So you can see here, this net income is the net income on the income statement. There's the net income. It's being shown here, not in an account, but in this line item that QuickBooks adds as just being part of the balance sheet. That's not actually an account. It's QuickBooks attempt to try to show us the link between the balance sheet and the income statement. That number should actually be in retained earnings, which is where QuickBooks will automatically roll it to if we go one day up. So I'm going to say what happens if I go to 2024, then that number rolls into the retained earnings. So if this is equivalent to the double entry accounting system, assets equal liabilities plus equity, if that balancing concept of an equation format is equivalent to the trial balance, how does the trial balance work if it includes both the balance sheet and the income statement in one report? Well, all of the balance sheet accounts are going to be basically the same. You've got the assets are going to be the debit balance accounts, liabilities are typically credit balance accounts. We have contra accounts that you might have to deal with like accumulated depreciation. And then we've got the equity accounts here are usually going to be liability accounts, but you're going to have contra accounts possibly within there as well. You'll note the account that is missing here. We don't have anything in this equity section that is net income and it's not showing anything here for retained earnings. You'll notice in here doesn't have any retained earnings. That's because the beginning retained earnings is actually zero. If I bring this back to 2023, the beginning retained earnings is zero. If there was something in retained earnings, then it would have something in retained earnings. So in other words, if I bring this up one day up to 2024, and I scroll down, now we've got the retained earnings here, which is the beginning balance for retained earnings. But if I go back 2023, there was nothing in the beginning balance at the beginning of the period. And therefore there's nothing in the retained earnings at this time. You can kind of think about like the opening balance right now really should be in retained earnings at this time because this is kind of like a plug type of account. You can kind of imagine that being where it should be in the retained earnings. And then you don't see any net income line here, like we see over here, because the net income isn't going to be included that way. Instead, it's going to add all the activity for net income. In other words, all the income lines are going to be generally credit balance accounts minus the expense lines that are debit balance accounts. So in essence, you can imagine this whole number, the 167646 is included in the trial balance because it's listing out all of the accounts like it is on the income statement. And therefore the retained earnings should have a beginning balance of what it was before the period. And that's how it's going to work. So when you look at the at the trial balance, if I look at the trial balance, it's usually reported as of December 31st 2023. That's a little bit deceptive because it looks like it's a purely balance sheet or point-in-time type of report. Why is that deceptive? Because it has the income statement on it, which is a timing report. So even though this is reporting as of a point in time, it's not going to show the retained earnings as of the end date, the end of the year. It's going to show the retained earnings at the beginning of the year and then show the timing information, which is going to be the year's worth of activity that's going to be the net income, which allows us to have the balance sheet and income statement on one report, which allows the debits and credits to be in balance, debits and credits being in balance, being equivalent to the balancing concept of the double entry accounting statement represented on the balance sheet by the accounting equation. So that's the general idea. Now, notice that the trial balance can get a little bit tricky when you start to look at it from a month by month basis because you'll recall that QuickBooks doesn't really roll over the equity, the net income into the retained earnings on a monthly basis. So in other words, like if you could see this most clearly on the balance sheet over here, see how I have a whole year's worth of net income. That's the net income for a whole year's on the income statement. What if I change my income statement to just one month from 1201, 23 to 1231? So then I only have income from, did I run it, run the report? So now it's only, I think that's different, 1680 versus what did I have, 01, 02, 03, Tab, versus 1678. It's a similar number, but it's different. So 1231, 23, we get, hold on a second, not 1231, 1201, 02, 03, one month. So we get to 1680. If I go over here, if I do the same thing and I was to say, well, let's make this one month, so it would be 1201, 02, 03, run it. If it was adjusting on a monthly basis, then this number should change now to match the net income over here, and the rest of it should be rolled into retained earnings. That would be if it was able to close out on a monthly basis. But that's not what QuickBooks does. QuickBooks basically automatically closes out your books, which is kind of nice and convenient, but it does so based on the year in that you put in place typically by default, that being a 1231 year end, and it closes things out to the equity section on a year by year basis. So the relationship between retained earnings and net income will be on the year by year basis, even if you're running the report for like one month. So the similar impact will be here on the trial balance. The trial balance is going to work best when you're running it year to date information because it's designed to roll out the net income to by year, but you might still be able to change the date if you want to limit the amount that will be in the sub ledger accounts when you're trying to drill down on the sub ledger accounts. So that might be a little too much detail, but the bottom line is that Okay, what happened here? I want to go back to my report. And then back here, the bottom. Okay, hold on. Okay, I opened it up again. I'll change the rent 010123 tab 123123 tab, run the bottom line is from an internal bookkeeping standpoint, the trial balance can be great, because you can use it as a format to drill down and double check your data input on one form instead of having two forms open. It's easier to navigate through. This is often also a form that's provided to the accountant at your end, because this is the easiest form to then adjust if you need to do period and adjusting entries for taxation or external reporting purposes. Don't let the debits and credits throw you off. You can still use it if you don't understand the debits and credits. But if you do understand the debt of debits and credits, then it's actually a more efficient way to look at things oftentimes when you're looking at the construction of the financial statements from the journal entries. This is the step before this is the step just before you then convert this to the creation of the financial statements. If you were to think about the process happening in order, that process basically being done behind the scenes by the QuickBooks system.