 QuickBooks Online 2024 Rental Income Setup Service Items Get ready and some coffee because we're getting the books on track with QuickBooks Online 2024 Here we are in our Get Great Guitars 2024 QuickBooks Online sample company file We set up in a prior presentation opening up the major financial statement reports like we do every time reports on the left in the favorites right click it on the balance sheet to open a link in a new tab right click it on the profit and loss to open the link in a new tab one more time with the trial balance the trustee TB same process let's tab to the right close up the hamburger change that range going from 010124 tab 022824 for the first two months of our operations I'd like to see them side by side so we'll have the months broken out and then run it to refresh it tabbing to the right closing the hamburger change that range 010124 tab 022824 tab month by month side by side por favor run it to refresh it tapping to the right one more time hamburger close that hamburger and change the range 010124 tab 022824 change it to months 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 is better than their stupid stuff anyways like this CPA thinking cap for example CPA thinking CAP you see what we did with like with the letters and this CPA thinking cap is not just for CPAs either anyone can and should have at least one possibly multiple CPA thinking caps why because based on our scientific survey of five people all of whom directly profit from the sale of these CPA thinking caps wearing this CPA thinking cap without a doubt according to the survey increases accounting productivity tenfold yeah at least yeah apparently the hat actually channels like accounting energy from the quantum field ether directly in your head allowing you to navigate spreadsheets faster it's kind of like how in like the matrix when Neo learns kung fu or at least that's what the scientific survey saying so get one because the scientific survey participants could really use some extra cash if you would like a commercial free experience consider subscribing to our website at accounting instruction dot com or accounting instruction dot think of it dot com side by side refreshing the report let's go to the balance sheet to discuss the new process here as you know we sell guitars where we are at and then we added on the service items of guitar lessons guitar lessons then kind of mirroring a process for the billing of the guitar lessons similar to what you find in a job cost system for say a CPA firm or for say a law firm and now we're going to be adding a new source of income to our business that being the rental income so we bought all this equipment you will recall of course when we started up the company the first thing that we needed to do was get some cash and we did that by financing it ourselves taken out alone and putting our own money in the business so we can take that cash and then buy the stuff we needed to generate revenue in the future which was the furniture and equipment furniture and fixtures so we had a nice place that we can be living that we can run our store in that would people want to come in and hang out with and then we could also we could also have the inventory that of course we're going to sell from our place now unfortunately it's in California the place is gone down downhill people don't want to come into the store because we had to put bars on the on the windows and the door and whatnot to keep out the crazies so now what we're thinking since we have all this equipment will try to compensate for that by renting some of the equipment so now we have all of this guitar stuff that people want to have a band or something they can come in and pick up the equipment and then we'll take a down payment to try to commit them to actually returning the equipment and that's going to be our new source of income so this will be similar to much what you might see and like other kind of rental situations possibly like a building rental type of situation because we have a situation where we're not selling the equipment however we are we are renting the equipment and in order to facilitate that transaction we're going to want to be taking down a down payment a deposit on on the rental income up front to commit the individual to one completing the rental process meaning when they request the rental of equipment at a future date they pay us the down payment so they commit to actually following through with that process and so we can hold on to the equipment for them and to in a hopes that they will then return the equipment after the rental process is over according to the terms of the rental agreement so that's going to be our new system to be setting up here that will mean that we'll have an unearned revenue situation that we touched on in a prior presentation because we're going to get that security deposit up front we saw a similar situation where we just looked at the unearned revenue if we basically got a down payment on the sale of a guitar let's take a quick recap of that of as I go over to my flow chart this is the desktop flow chart which we're using for online purposes just because we want to look at the flow of the forms which are basically the same for any accounting cycle so for on the revenue cycle at the end of it there could be many different cycles but at the end of it normally we get paid and money will be coming in for goods and services provided and all of the normal methods would usually be going from left to right in this screen so for example the easiest method would just be all the way over here we just start from over here we wait till something clears the bank and then we deposit it with a deposit form recording income at that time possibly if you're like a youtuber or something that would be the easiest thing to do because you get paid you just record it as income when you get the money but if you have a store like we've been working at here so people come up and they have the guitar that they bring up to the cash register you can't wait till it clears the bank as a deposit but typically rather want to record it at the point in time that you bring it up on the cash register as an internal control often putting it into a clearing account that you can then deposit into the bank in the same format as will be shown on the bank statement due to different types of payments you might be receiving cash versus credit card versus a check and that kind of thing this is still a cash-based system however then if we go to an accrual-based system that would be a system notice that you could still call it by the way I could call it cash or accrual because either way the money is going to be recorded or revenue will be recorded at this point in time but you can think of it as kind of like a cash-based system because there is no difference between the timing of when I do the work and when I get paid so there is a difference if we have to issue an invoice that would be an accrual-based system so now we're going to say we do the work first like in a law firm or a CPA firm we bill the client then have to track the accounts receivable we then get paid we then make the deposit so the flow is always going from left to right here although we might cut off this front bit and be over here but there are situations where the flow is backwards where we get the money first and then we do the work and that's the case when we saw the classic book example is like the lame legacy media on their last lame leg trying to sell newspapers in that case they sell you a year's worth of newspapers that used to be kind of interesting but now they're just bricks that you pay some kid to throw at you for some reason it's kind of like a I don't know if you feel bad about yourself you let the kid have a brick that they throw at you once a week that's completely useless but they still have some people that do that but then you also have the applications that if you have a computer application then oftentimes you get paid first so anything that's like a subscription model is a classic kind of example of having all of your revenue being collected in advance generally putting it into unearned revenue and then having to bill for it after that point in time other classic example is the rental property which we're kind of mirroring here if you have like a residential rental and you're running residential rental you're going to be collecting the first security deposit or possibly the last month's rent for a similar reason as we are doing here to cover damages to make sure the property is returned and the same condition that it was originally in and so we're going to be mirroring the similar process here with our rental property we're going to collect the down payment basically upfront the other method or example you might have is what we did before whereas if you sell a large piece of equipment and you're going to make the sale but you have to order the equipment or make the equipment then you might ask for a down payment upfront meaning you're getting the money before you pay for it before you do the work because you want to lock them into the sale because you're putting work into customizing this item and you want to make sure that they're going to follow through with it alright so the first step in our process is going to be that we're going to set up our items so I'm going to go back to the first we're going to imagine what what's going to happen here is if I hit the plus button someone calls in for a rental property when they call in we're going to want to set up an estimate form which isn't a form that will actually record anything you'll recall that's an internal form that looks a lot like an invoice but doesn't actually record anything and that will allow us to then calculate what we think the down payment will be and so then we will collect the down payment and we saw different ways that we can record the down payment but I think the easiest way from an internal perspective would be to create a would be to create a received payment form usually the form entered after we have an invoice but now we're going to do it before we have an invoice to get a negative receivable a credit balance for that particular customer and then when the customer comes into the shop and we facilitate the transaction we will basically use the client at that point in time would be that's the general flow so that means that when I enter an estimate we have to have things set up in a similar way you'll recall when we had someone at a cash register you've got some kid at the cash register doesn't not very engage sleeping under the counter and whatnot until someone brings them something and he could still ring it up pretty well because we have the system set up pretty well we want a similar things with the estimate that someone calls in and says hey I would like to request rental property and the phone wakes this kid up that gets out from underneath this sleeping position under the counter is like oh okay dude I'll tell you how much it costs to do an estimate and so that means that we have to have all of the items set up properly so that he can make the estimate and collect the down payment very easily so that means if I let's do that if we go on over into our sales items over here and then we go into our products and I'm going to close up the hand boogie so so now we're going to add our our rental items which I'm going to enter as service items here and note we could add look at we have all these guitars so you might say okay maybe I put a different rental service item for a different price for each individual guitar but note that's probably not the best way to go because then it's going to get confusing oftentimes because there's too many options so oftentimes it's easier to limit the options otherwise you have paralysis in both yourself as you ring it up as well as with the customers because again the person in the shop probably doesn't know as much about it as the person who's designed the system the owner of the business so you want to make things easy so typically we might say okay here's the basic rental package it includes two basic guitars or something like that and it has one drum set and then it has an amp or something like that and that's it right so we'll have a standard guitar rental set that has certain guitars that they could basically interchange or whatever whatever's in the shop at that point in time in an attempt to say that's the baseline and we're not going to sell you we're not going to rent like one guitar it's not going to be worth our time possibly we have to go for the whole band set and that's going to be the minimum price that we will use in order to engage in basically a rental property if you want one guitar it's still going to cost you the cost of basically renting the band set is it going to be the general idea and then maybe we'll add on to it saying if you want to level up from that starting point then you can buy another guitar for a tacked on fee or buy another amp if you really want to piss off the neighbors with a tacked on fee alright so that's the idea so let's go new and we're going to add a service item and we're just going to call this a band set rental number one and just a generic name now the question is do we want to put it into the same service income it's still kind of a service here but so it's going to be a service item I'll get to that in a second no SKU number let's actually make it a category so let's call this a category and I'm going to call it rental rental items and this category is not a subcategory I'm just going to go category rental items boom let's make that and then so there it's in a category the description is going to be the band set one and we might put in here that it's going to have what did I say something like rental two guitars Tars one drum set bass and amp or something like that and we're going to say that I'm just making up a price like $2,000 I have no idea what this would be and we probably want the duration of days but I'm just giving a general generalities here and then we could put it into service income and notice I don't want to get too crazy with the income statement you will recall we don't want to have let's go over to the income statement remember that we don't want to have a separate income line item for everything that we do the problem oftentimes people get into is they make a separate income line item for every customer they do business with which isn't normally what you want to do unless it's like gig work or something you can call it youtube income because youtube income kind of makes sense because you're getting paid by the platform and you might not have a sub account but if you deal with most industries you're going to want to not break out all your income lines by customer because you can make a sub ledger if you're using the proper sales forms invoices and sales receipts that will break out by customer same with the service with the items inventory and service items we don't want a separate income line item for every guitar that we sell because we can break it out in another report and it'll make our income statement too long but we might break this out instead of normal service items like guitar tuning or something we might want a general another one which is going to be rental right equipment rental so let's do that I'm going to make another income account over here and I'm just going to say new and we'll call it equipment rental it's going to be an income account and it's going to be another primary income and I'm going to call it rental income let's call it equipment equipment rental income but you got to spell it right so let's do that and then we'll say save it alright that's the income account no tax is going to be applied to it in our practice problem we're talking state sales tax because it's not inventory being sold so I'm going to say no tax we don't have to purchase anything so there it is we're going to create that and scroll down we can say it put it into where did it go there it is the rental and let's sort it by category now so I'm going to sort it by category band set boom and then under there I'll add so that's the baseline and then under there I'll add if they want to tack on like more guitars or something it's going to cost we're just going to make up another another $40 so I'm going to say then if you have another service item and we're going to call it if you wanted to add add rental amp let's say amplifier I'll try to spell it for band set number one or whatever service item it's going to go into the category rental items description add an amp we're going to say that cost you another $40 and it's not going to go into service income but equipment rental income no tax applied to it no tax and then we'll save it is one of the thing another reason we are doing this this new method because California number one made us put they don't they don't protect us we had to put the bars on our doors to stop people from stealing our inventory so no one wants to come in anymore and hang out with us and also they charges sales tax which was basically for protection money where they're supposed to protect us but then they stopped protecting us so if we do the rental income then then we can at least maybe not have to pay the sales tax so then I'm going to do one more I'm going to say another one and this one is going to be caps lock add rental guitar amp this is add another guitar add rental guitar okay now I can't even spell that's what I said you sell guitars and you can't spell guitar leave me alone this is going to go into rental items and then description add rental guitar and we're going to say that that costs you another $50 and we're going to say that goes into equipment rental and so then we're going to say then that's going to go into non taxable income once again and that's there it is so we can create that so that's going to be our general idea here so now we've got in the category if we sort by category we've got the overall band set rental and then if they want to tack on more guitars or possibly level up the guitar then they could then they have to pay pay more per item so so now the we won't actually record this but now the general process what I'm thinking here is we're going to say okay someone calls in and they want to have a weekend they want to piss off their neighbors a lot and they thought that if they have like electric firing guitars and drums that would be good so we're like yeah dude that's what we do here so they call in and the guy wakes up for month to the counter and is like yeah we could totally give you the stuff to piss off your neighbors and so we go into the new and then he can make an estimate I'll tell you how much it costs right now and you could give us a down payment and then we and then the normal band set and they're like well we only want one guitar or something like that it's like no dude you have to you have to get a full band set even if you want one guitar because that's how it that's how it's been set up man but then they're like okay well really we want like the whole band set and then we want an extra guitar or two extra guitars or something it's like we can totally do more guitars we could that's like two more guitars and we want two more amps or something because one amps not going to piss people off enough like oh I totally understand dude another amplifier and so that's something like that right and then we can take the estimate and we can take like a down payment based on the estimate it's going to be the process but we won't finish that this time that's what we'll do that next time this is foreshadowing for the next one so stay tuned and we'll do that nothing happened to our financials as of yet this because we just set up our items we're ready to go we're ready to start our new revenue stream business here