 Hello and welcome to it live tutorial Tuesday. We had a bit of an out in the stream So we're back up on the stream of a give of a quick recap of what we have so far and then we'll get going into The problem so we are on part four part four of the problem the comprehensive problem If you've missed parts one through three, that's okay. We're gonna start from here for this is a standalone piece from here Forward if you want to go back to the prior pieces that is fine, too I don't think there's a link in the description. We kind of overlooked that but they're easy to find they're gonna be the live tutorial Tuesdays One through three going through the comprehensive problem again We can go from here forward and I'll explain how that works in a second Okay, so the materials that we will be using throughout this process will be the excel worksheet here So this is going to be us doing it by hand the idea being that we want to go through a comprehensive problem by hand put it into excel and then put that the same comprehensive problem into QuickBooks and this is good for both students and People who have experience in QuickBooks because they both have similar issues They're trying to ask well How can I have the theory and use the theory to apply to software? How much theory do we need to know? How does it tie out? How does the theory tie out to the software? Those are the things we want to do as we go by putting the information into excel first and Then into the QuickBooks software So this will be the excel file that we will be using This will be the QuickBooks file that we will be using both the excel file and the QuickBooks file are Available in the link below so you could go to the link below find those files and then Use them as we go through here and or use them at a later time The there's also going to be a file that will be for a Google Sheets file So you could also use the Google Sheets file. It is a free file Google Sheets not having as much capability as Excel does, but it does everything we really need to do so It's highly worthwhile, especially if you don't have Excel to use the Google Sheets. It can really be helpful We can also work that problem live if we so choose during the presentation because there's a live File there and you can download it The QuickBooks file on the other hand it is uploaded But I don't expect everybody to have QuickBooks. It is a program. That's going to be a more expensive program The file is a backup file. So if you download it, you're gonna have to upload it and restore it to the program If you don't have QuickBooks, that's okay The idea here is just to show how the theory that we're putting in place Whether you're learning it as a student or you know QuickBooks and you're trying to learn the theory side of things The question is how do we get it from kind of the theory doing the process by hand to then putting it into Excel How do the two things tie out? So I'm going to go back to Excel here and we'll work through this problem There's going to be a few tabs that we did prior again You don't have to have done these tabs prior but if you want to do them later you can We're going to think of this problem as a standalone problem and or a problem within the larger context As a standalone problem all we're going to do is we're going to take this trial balance Enter that data into financial statements. That's the point. We are at what have we done so far We have started the company back on this first tab We started the trial balance out by entering data into the trial balance starting with the owner putting money Into the business and moving on from there. We took those journal entries We entered them into the general ledger over here and we that general ledger then was used to generate the trial balance here So this looks like a very complicated spreadsheet. This is very complex looking when people first to see it But really we're only doing one cell at a time So if you go back and take a look at that, it's not as bad as it looks We did the same process as well in QuickBooks. We took the same information We put it into QuickBooks so we can see how the two things would line up What do we need to know within QuickBooks to generate the same data? What will QuickBooks do by itself? What type of data input do we need to put in place? We then took that trial balance and we applied it to the second tab here the adjusted trial balance So we took the unadjusted trial balance We then made our adjusting journal entries Which are just journal entries as of the end of the time period used to make the financial statements correct as of that point In time to create the adjusted trial balance Trial balance is just a trial balance really. It's just a timing of when we are at in terms of the process So this is before we did the end of period adjustments This is after the end of the period of adjustments meaning we've adjusted it to an accrual basis and we've done like the Bank reconciliation and everything to it in order to Create the finished product that the financial department does that being the financial statements That's what we're going to do on the third tab So we are now on the third tab creating the financial statements as a standalone problem We're going to say all right now. We have the under the adjusted trial balance We need to make financial statements from it in terms of the bigger circle or the bigger cycle If we had the adjust the entries the adjusted entries and now we've got the adjusted trial balance with which We will make the financial statements from in terms of QuickBooks QuickBooks already generated the financial statements when we enter the data. That's what QuickBooks does So we can see on the trial balance It's been generated from the data. We entered into QuickBooks and QuickBooks also because it's just a program It's just a puzzle as we'll see has reshuffled that data to Relevant forms those forms generally being a balance sheet and an income statement a profit and loss the things that we are making So when we generate these forms what we're looking for is how is QuickBooks putting this together from QuickBooks standpoint? We want to say hey, is there if there's a problem in QuickBooks? Can we see that problem? Can we go back to the data fix it? Can we set up the data so that the the QuickBooks forms will be processed correctly? So we're going to look how they're put together with that end goal in mind So I'll be right back and to check a couple things and I'll be right back All right, so everything looks good this time. That is that is good So let's go into this. We'll see what we have here So in the Excel file what we're going to do is just take this It's just I would just think of this as a puzzle It's the best way to think of it It makes it the most fun kind of way to think of it The puzzle is now formatted on the left-hand side in terms of debits and credits in terms of the adjusted trial balance We know that it is in balance We know the debit or the double entry accounting system works because the total debits I have with positive numbers minus all the credits Equal zero meaning the debits minus the credit are zero therefore the debits equal the credits. It's in balance That's what this green zero means This is going to be the net income it calculates the revenue minus the expenses The point being that if we are in balance Then it has to be able to reshuffle this data and be in balance over on the balance sheet And the related accounts have to be related to that how we'll see how that happens Want to point out that the trial balance is really kind of a more compact nice way to see it if we understand debits and credits but People that don't understand debits and credits of course want to see it in terms of a plus and minus So just to show you that real quick in this one trial balance section and this one format I can say okay. What are the assets? I can just highlight them and say they're 46 1060 what are the total liabilities? I can highlight them and say Excel adds them up to four thousand three seventy six What is the net income? I can just highlight the credit minus the expenses on the income statement 3684 is the net income what is equity two ways to find it all the blue accounts is the 41 684 or Assets minus liabilities basically debits of assets minus cuts liabilities is the same 41 684 Everything is really right there in a pretty handy place if we format it in the proper format But if I was to show someone else that and tell them, you know, tell me what equity is it would be more complex What we want to do then is put this number the building blocks into a plus and minus format That's what we're going to do here So that is going to be the balance sheet the income statement the statement of equity of those three statements The balance sheet is really the double entry accounting system So a lot of a lot of textbooks will start with the income statement and feed into the balance sheet But I'm going to start the balance sheet for a couple of reasons one It's everything it gives you the big picture kind of first and it's often the first Report that we're going to look at and it also is an order of accounts meaning we have balance sheet accounts and then income statement Accounts so for that reason I'm going to do a bit of an unorthodox method I guess and start with the balance sheet and say the trial balance in essence is The balance sheet and start with that big picture and then see how the story gets us to that big picture So in terms of a movie We're kind of starting at those types of movies that start at the end with the heroes like falling off a cliff And then you got to go back in time and see like why how he got to that point in time Or he or she got to that point in time that we're going to do that here Hope we're not falling off a cliff But we're going to say here's where we're at at this point in time and then look at the story statements the income statement And the equity statement to see how we got here. Okay, so a couple formatting things We're going to say assets liabilities and equity. We know the balance sheet is going to be as of a point in time There's only one date 331 I know I should have a name and everything but this is going to be kind of a rough draft just to put the puzzle pieces together So within assets, we usually break out assets into a couple different formats starting with current assets It's useful to look at the formatting Both here and excel and get used to some different types of formatting notice I put current assets and then a colon that generally means I'm going to have a group of different accounts That are going to be current asset type accounts Now I can just go down straight down the balance sheet and say cash current asset. Yeah, I Accounts receivable. Yeah supplies. It is prepaid rent is prepaid insurance is office equipment is not Why not because prepaid our current assets or assets that are relatively Liquid Whereas the office equipment is something that's going to be there for a long period of time So all of these I'm just going to list these out basically over here. There's a couple different ways We could do this. I could copy and paste it. I can even use a formula. So for example, I could copy cash Put it right here and put it in h5 right-click and paste it 123 Notice it indented for me. That is in the home tab alignment Indent so if I unindent and then re-indent, I'm going to Unindent them now and just re-indend them So so I'll put them in there first and then I'll then I'll go through and I'll re-indent as we go We're going to go home tab alignment indent So that's just the formatting that we will have note that we could even use formulas I could be here in h6 and say I want to equals this Receivables and it Excel will pull over the the wording of it We could do the same thing here. I could say this equals the supplies and I could even auto fill it down If I say the next one's going to be prepaid rent and insurance if I go on this tab and auto fill I could auto fill it down. I could also type it in there, of course That's perfectly acceptable and I'm going to highlight these now those cells Home tab alignment and increase indent and now they they are indented Then I'm going to put the numbers in there And I recommend using formulas as much as possible with the numbers with the wordings not so not so important With the numbers. I think it kind of is important. So I'm going to put the wording in there I'm going to go to The cache and I'm going to go in I5 I'm going to be in the inside not the outside not because it's a debit But because that's the format in terms of plus and minus and we're going to say that that equals and point to this 13960 and enter so we just pulled that over I'm going to do the same thing here We're going to say that the account seeable equals point to that 1400 and enter I'm going to do the same thing here equals the supplies 800 and enter equals the rent Prepaid rent I should say and enter and the last one being the prepaid insurance Now you might be saying hey, is there an easy way to do that or asking? Hey, is there an easy way to do that and and there is we can if I delete these and I use the auto fill I Can see that these cells are relevant in In area to this cell so I can put my cursor on this item and highlight down and auto fill down in that way And that will that will auto fill the information. I'm going to make this bold all of it All right, then we've added these up on the inside then we're going to pull them out to the outside I'm going to go ahead and underline it I'm going to go to the home tab alignment and underline and pull this sum this up to the outside And we're then going to call that the total current Assets I'm going to click off of it back on it just for formatting purposes and go to the home tab Alignment indent two times and put this in the outer column Obviously if we did this with a calculator, we would just add these up We would say it would be one three nine six zero plus one four zero zero plus eight zero zero plus one zero zero zero zero plus two two zero zero We're going to do that. Hopefully I did that right, but we're going to do that with the sum function in cell J ten equals the sum equals the sum of These items and it should give us that same number there We have it and so that's how we would do it in excel Now in quick books, it's going to give us it's it's basically going to give us that information, right? So in quick books if we're looking at The balance sheet we're going to be over here I created a report for balance sheet it generally will have current assets And then it might have some subcategories depending on the type of balance sheets that that we have generated And so we've got the cash We've got the accounts receivable other current assets, and then we've got the total current assets here 28 360 that should be what we have the 28 360 in our representation as well All right, and then we're just going to move on to the to the next one here We're going to say the liabilities Those are going well then one so I'm going to go to property plants and equipment We've got these two left over if we wanted to check this by the way I can just highlight these and say that adds up to 20 23 28 360 that should tie out here Now we're going to do the last two and we're going to put that into another category And that's a very long category property plant and equipment And I'm going to put a colon Saying that we're going to have subcategories here And again, I'm just going to these are the two that are going to be in there office equipment and accumulated depreciation I'm just going to copy those I'm going to put them right underneath. I'm going to paste them one two three just the values only Then go to the home tab alignment and increase And then I'm going to pull those into the inside again And say that this equals that 18 And then this one has a credit and I don't really want to put a credit here I want to tell the reader that it's it's a subtraction problem because it's going to be But I'm going to put it down by saying less Tell the reader with words. Hey, it's not a minus sign. It's going to be a less That's kind of formatting. It could be different different financial statements to flip the sign with a formula I could do this. I could say this equals the 300 Go back on it and then put a negative in front of it And what that's doing is just saying hey excel take that number and then multiply times negative one Or I could just in excel not in google sheets, but in excel I could just say negative instead of equals and then point to that 300 and it'll take it away there as well Now then we're going to have the subcategory of property plant and equipment without the colon I'm property property plant and equipment. I'm going to remove the colon And then we're going to sum them up over here or or Do something at least with those two columns? Now we're going to do a subtraction problem But this is where a lot of people get mixed up in in this particular area because They sum these two up and that's one place people are often off. So let's do that and let's see what happens So I'm going to do this is wrong. I'm going to I'm going to equals the sum of these two items here And now that's 18 380 and then total assets should be all of this now all the green which represents this number And this number so we've we found a home for all these we might even want to highlight and say hey I found a home for all those once we find a home for everything Then we should be done. So I'm going to go over here and say this is the sum of these two numbers And enter so that's going to be the 46 6 60 now if I compare that to what the green accounts are here 46 60 It's not the same. So that's that's going to be a problem. Why is that the case? Well, this is going the wrong way and that's kind of how we can piece this together as we go So what we need to do here is flip the sign and this needs to be a 300 But I'm going to make it a subtraction problem here. So in excel, I'm going to say this equals the 18 000 minus The 300 and that'll give us the 17 7 represented by the debit Minus the credit 17 7 gives us now a total of 46 60 Summing this up a total of 46 60 And if we if we look at that in quick books then Uh, we can see the total assets 46 60 And we have fixed assets also known as property planting equipment the terms Another thing we need to kind of understand could be slightly different in terms of uh, how they're going to format it Also, note that the groupings that we have could differ slightly in terms of how many accounts we put into one category meaning uh, we might have Multiple prepaids here. So we got prepaid rent a prepaid insurance We might just call them prepaids, you know and put both of those into one account We could group them together depending on how many accounts we have clearly. This is a fairly small example Not that many accounts therefore having too many accounts is not really a problem in this case Now we're going to represent our balance sheet with the assets on the left hand side Liabilities and equity on the right hand side Unlike quick books here, which is representing assets on top And liabilities and equity on the bottom So we'll we'll just show in a bit of a different format just to show how it can be in a different format But the essence of it is the same So we're going to be back over here and we're going to do the same for liabilities liabilities are broken out in a similar way meaning we have current liabilities Colon And those current liabilities are going to be basically everything we got now We don't have any long-term liabilities at this time meaning liabilities that are due over a year's time period So we're still going to indicate that we're going to put current liabilities to tell our reader Hey, they're all current and we've got payable salaries unearned rev unearned fees So we could copy and paste those i'm going to do it with a formula here. I'm going to say this equals This accounts payable and it'll pull over that number And I can even use formulas again to pull it down So I could say copy and paste that or autofill put my cursor right there Autofill it here and it'll take the relative references and just pull them over we could type them in there So if this is this is the problem That's okay You could just type them in there and that is fine too But just some formatting things that we can do now note that we have credits over here And we don't want credits over here. I want to pull them into the inside Not because these are debit and credit columns, but because they're plus and minus columns and we're summing up We're adding them on the left and summing them on the right So I want to flip the sign again And the way we're going to do that is I'm going to put in instead of equals A negative sign and then point to that 800. So I'm going to take that 800 and flip the sign Take the 800 excel and flip the sign please or multiply times. I can negative one which will flip the sign And there we have it So and then we can do that same thing down. I can autofill. So I'm going to put my cursor on autofill And drag it down and auto drives it down. Dr. Phil does the calculation and autofill Creates those numbers. So there they are it's coming from there. It doesn't just take them from nowhere, obviously It's coming from there and we're putting them over here again. You could type them in there I highly recommend using formulas. However, because if there's a problem Formulas are a lot easier to find but you could put each formula in there individually as well Then we're going to have total current assets Or total sorry total liabilities and notice i'm just going to put liabilities And this is a kind of a tricky thing you might be saying well, why didn't you put current liabilities? and the reason is That uh, we don't have any other liabilities So I want to tell our reader. Hey, they're current liabilities with the subcategory and then down here But they're also total liabilities because they're all the liabilities we have Also note that I haven't been formatted the formatting here is indented That's with the home tab the alignment and this indent button And it just makes it look a little nicer. That's what you're typically going to see oftentimes If you kind of know how the financial statements will be added up Then when you get to longer financial statements, it's a little easier to read meaning If we have a colon that means we're going to have a subcategory And the subcategory might be in an inside cells and then summed up in the outside cells We could do that also and represent that summing and those subcategories through The indentation and then the double intendation here. So that's fairly fairly standardized So then we're going to sum this up again if we had the calculator, of course, we take the 800 800 plus 576 plus 3000 and obviously we we really miss Doing that punch in those numbers into the calculator But excel allows us to do the sum function here, which is you know, what we use 99 percent of the time of the sum function And we're just going to sum that up And there we have it now We might want to underline this and make it look a little nicer by going to the home tab font and underline There we have the liabilities if we go to quickbooks obviously quickbooks is it has generated this report as well Hopefully if we see how the quickbooks formats this we have liabilities Current liabilities It's going to break out the payables in its own area other current liabilities and then total current liabilities This is really important in quickbooks because when you set up a different account You have to set it up in one of these categories. You got to know Like when we set up unearned fees, we had to know that it's not an expensive account It's an unearned It's a current liabilities account And we have to put it in if we don't put it in there then then things are going to get messed up And again anybody can do the the data input once it's set up Well, not anybody but it's a lot easier to do the data input Once it's set up and someone shows you how to enter the data a few times So it's what where the value really is is knowing how to do the setup And how to recognize when there's a problem after the setup has been set up So that's what we want to tie out and that's where you need to know The theory or some at least some of the deficit credits. Okay. So then we've got the equity section So the equity section in this case, we're going to say the owner the owner's equity We're going to say it's a sole proprietor. So we're going to have a capital account rather than Retained earnings account And I'm just going to call it one account usually if there's if it's if it's a sole proprietor We're just going to represent one account if there's only one owner And and if you're thinking about a corporation or someone or a partnership The concept's the same just think about all the all the owners as one entity The only problem with a with a obviously the more of a problem with the equity section of a partnership or a corporation Is that then we need to take that equity section and break it out between who owns the company But in essence if we think of them all as together one owner Then it's all basically the same concept is one it's one number That's basically the book value of the company or the value that is owed to the owner Now i'm going to do the the wrong thing here and say and then tell you why So obviously if I say it's owner's capital I'm going to say I'll just say it's owners Capital and by the way we found a home for all these accounts So i'm going to make that yellow and say we did that so now we just need to find a home for all these Now if I say owners capital and i'm just going to put it to the outside I'm not going to some categorize because It's there's only one number So I don't need to put it in here and then sum it up over here I'm just going to put it on the on the outside and that's why that happens if you see a loan number out there When before we had these subcategories. It's because we don't need to subcategories. It's just going to the outside column All right, so i'm just going to say that this i'm going to put a negative and i'm going to say there's the owners capital right there 50 It's the same exact name as is on the trial balance that has to be the right number, right? It's not but i'll tell you why but let's use that number And then if I add up then if I sum up the liabilities and equity Equals the sum of The liabilities and equity Are we in balance and we're going to say No, we're not in balance because the 54 of the liabilities and equity is not the same as the total assets Why what is wrong here if we check each number we sit we check the assets It's 46 60 46 60 liabilities 4,376 4,376 Owners capital owners capital What's going on? Well, I mean if we look at quickbooks, it'll give us kind of a clue here if we go over quickbooks Quickbooks if we go down to the equity section it has broken out to draws And it's broken out net income in the equity section and and that's kind of a hint here We don't traditionally do that when we when we make the financial statements We don't put draws in there or the equity section in the balance in the balance sheet I mean because That's represented on the income statement and the statement of equity But it's it's kind of handy to see that those accounts are in there because that's what usually messes people up meaning this balance sheet here Is as of may 31st and all these accounts that are balance sheet accounts are as of a point in time But all these accounts are have temporary accounts meaning their story meaning they represent May 1st through may 31st meaning At may 31st all these numbers In terms of the balance sheet should be in here And so we'll see that in the closing process when we do that next time and we'll see that As we do the other financial statements, but I want to show you the big picture now And how easy it is to just basically put that number into the balance sheet First and see that it's the big picture and then get some more detail on that which again is a little bit backwards and then Other textbooks might say to do this But if you if you set up the the trial mouse like this all you have to do is say If I if I take all the blue numbers Then it's 41684 Now remember we're taking debits and credits here. So what we're taking Uh in order to do that is going to be a uh 50 000 i'm gonna i'm just going to put it as a positive 50 000 And then we're then we're reducing the equity section by 12 000 minus 12 plus the 89 income minus the expense 1536 minus the expense of 2000 minus the expense of 400 minus the expense of 300 minus the expense of 200 minus the expense of 780 gives us the 21 784 and that Is not what I have here. Let me do that one more time We got 50 000 minus 12 000 plus the 89 000 minus 1536 minus 2000 minus 400 minus 300 minus 200 minus 780 121 784 And I'm getting 41. What am I doing wrong here? Do that one more time 50 000 minus 12 thousand plus eight nine minus 1536 minus 2000 minus 400 minus 300 minus 200 minus 780 41 so okay and That messing up with the calculators probably the reason that originally we you know did the balance sheet kind of last But if you're using excel clearly You just need and you set it up like this all you need to do is highlight this and say well excel does it How does it do it? Well, it takes the credits minus the debits and makes that calculation. So this number then Should represent all the blue numbers. It's it's going to be all combined in there So i'm going to say this equals the sum i'm going to make it the negative sum because i'm going to flip the sign And well, let's do it the sum first just to show you the sum Of all these numbers the 50 down to the 780 That would be it But now it's represented a credit and we don't want a credit over here. Therefore we need to flip the sign We could multiply times negative one. We could just type the number in there But I would rather have a formula. So i'm going to put a negative in front of the equal All right, that's fine So there you have it and and again if you're in excel you could just say negative sum And excel will say oh that means you want to sum it up and flip the sign or sum it up and multiply times negative one All right, so there's that number and and if we go back to quick books then We can see that We have the uh the 12 The 50 and uh the three six eight four for total equity of 41 684 that should be what we have here negative sum of the 50 down Okay, 41 684. I picked up the income statement Now we're in balance because the total assets equal the equity Plus the liabilities now. Let's go to quick books quick books. We'll do that for us The 41 684 the 46 uh 60 is the liabilities plus the equity Which equals the assets? so Quick books the handy thing about quick books. It'll never let us be out of balance It won't let me make the mistakes the multiple mistakes that I made over here Right and if we're not in quick books, then I have to use the double entry accounting system and go back and say What did we do wrong and in quick books? What what the frustration we have is that? Quick books won't let me do this Why won't it and if we don't understand that it's not letting us do it because what we're trying to do We'll make it out of balance then that's where the frustration lies when working on the quick book side And and the answer to both of those things is just to understand a bit about the double entry accounting system Okay, so now what we're going to do the other two statements We found a home for all these numbers including this one But this one we kind of combined together and made all this number So this number is all these blue numbers and what we're going to do now is say that's we want to reconstruct this number We want more detail about it this number also represents the book value of the company meaning its assets Minus the liabilities is that number and so that's kind of like you know what the value of the company is worth So if we think about that as the value of the company where we stand then What we want to do now is say how did we get there? What's the story that brings us to that value and that's going to be the income statement and the statement of equity So the income statement is usually going to tell the story back A month in this case or a year in this case a month So we're going to say okay. How did we get to a value of 41 684? Well, sit down. Let me tell you a story of what happened You know last month And we're going to start that off with the income statement So we're going to have revenue and expenses. So those are going to be these numbers here We're skipping these two Revenue and expenses for the month of May So i'm going to copy this one I'm going to paste it in h20 paste it one two three values only And i'm going to put this in the outer column So we're in the outer column not because it's a credit but because there's no other number there So i'm just going to put it in the outer column directly. I'm going to do it with a negative to flip the sign To a negative number and there we have the 8009 I don't need to sum any up because there's only one number if I had multiple income numbers I would need to sum it up most companies have less Income accounts then of course expense accounts almost all companies because Although the income account hopefully is higher in dollar value We only do one thing whereas we pay for everything else meaning We only generate our revenue specializing on a few things and we had to pay for everything else Which are all the expenses so expenses then we'll have a subcategory here. We're going to say Expenses will be expenses Expenses Colon subcategory and then I'm just going to put all these expenses in here In larger accounts the real Issue here on the expense side is what order do we want the expenses in and what should we sum up some expenses? If we have too many categories in the trial balance How can we shorten those up or what would be a logical fashion in order to present those expenses? On the income statement with this very small income statement. We don't need to really worry about that I'm just going to put all the expenses here meaning I'm just going to take this expense. I'm just k equals bring over the salary Bring over the rent expense And then I could just copy them down. I'm copying rents supplies I'm down the miscellaneous insurance And miscellaneous again, you could just copy and paste these over here as well But note the format. I just put a colon Then we have the format here indented home tab alignment indent showing that it's a subcategory Then we're going to put the numbers on the inner column Not because they're debits did just happen to be debits But because in this case we're we're going to add them up or put the numbers in the inner column Not the debit column the inner column and then sum them up in the outer column Because remember financial statements. We don't talk debits and credits when we present financial statements That's just going to confuse people So we're going to we're trying really hard not to have debits and credits represented in the financial statements So we're going to say this equals the one five three six And we're just going to pull all these numbers down. I'm not going to group them up in any different way We're just going to have the same numbers represented again. If it was a more complex financial statement uh, we would probably have some more detail in terms of Of these numbers as well Well in terms of grouping these numbers, we might have to group them differently and or order them differently Expenses usually being the largest category of Types of accounts within an organization Okay, so then I'm going to go ahead and underline this we're going to underline this home tab alignment or a font Underline and sum them up and call that total expenses All right, and then we're going to I double indented that that's in the home tab alignment to double indent And then we're just going to sum those up again. I could just highlight them and excel We'll add them up. We could put it in the calculator, but I've messed up too many calculations already So I won't I won't do that again. So it's five thousand two sixteen And so let's go to the sum equals the sum of the sum Just highlight those numbers for the expenses and enter There we have it if we want to check those numbers to the trial balance And we have the trial balance set up in this format then We could just highlight these numbers and say trial balance here excel adds it up to five two One six, that's what we have there Therefore it looks correct All right, then I'm going to go ahead and underline that home tab font underline And go to the final line which of course is net Income And now we're just going to do something with the outer column in this case subtracting. We've got revenue minus expenses So i'm going to say within j 30 equals that revenue minus minus Those expenses Equals the three six eight four. That's what we have there. Let's take a look at what quickbooks does So quickbooks we're on the balance sheet now We're going to save the income statement first thing we need to know for quickbooks on the income statement is they don't call it an income statement They call it a profit and loss So profit and loss is this statement that is the income statement For quickbooks. Um, so here we have we got revenue One category and then the expenses note. They're not kind of subcategory Categoring to the right-hand side, but they are still subcategorizing So we have the well they are kind of cat. They got the expenses and then on the right hand side the subcategories Then we summing them up and then we've got income Minus the expenses. They didn't really break out the income and the expenses into their own column but bottom line is the three six eight four and the three six eight four Over here now. We have one more statement that we need to create we found a home for all of these statements And we found a home for them originally without group remember We found we grouped them all into this number And now we've broken them out into their own homes. So we found a home for everything Although we don't see how this number yet ties into that number That's what we'll do in the last piece here. So remember that this is the value of the company This is the book value assets minus liabilities is the equity the value of the company This tells the story of last month But last month isn't the whole story and this doesn't even tell the whole story of last month It only tells us the earnings minus the expenses One there was draws here that we'll have to deal with the owner taking out draws and two This business was in business prior to last month. So that's what this beginning capital is That's how we're going to add those two in to our next Timing statement and we're going to start with the owner capital As of may First Let's just keep it may first I should put the year but i'm not gonna okay may first So this is going to be the statement of equity and the statement of equity is basically going to say Hey, this is the book value or the value that's owed to the owner As of the beginning of the time period This is what happened during the time period in summary meaning net income is what was generated revenue over expenses And any draws that happened in terms of the equity accounts and then it's going to give us the ending equity account so note that When we look at the the trial balance the reason this capital account is confusing Is because it's kind of in between on the capital account. We don't put any dates We we say the trial balance is basically as of a point in time as of 12 31 But that's not really true. It's really the case that the first half of the trial balance Up here is as of a point in time balance sheet accounts And the second half of the trial balance down here Is going to be a timing statement And this number right here is really confusing because it's really a point in time Generally, basically as of the beginning of the time period, right because that's that's what the number was before We started meaning it's it's what was in there as of as of the beginning of the time Plus any investments in this case. It happens to be an investment that we that we put in there. So Normally if you look at the at the capital account here, it's going to be just Last year's numbers oftentimes even though there's no date here Then we could have investments that we put into the capital account and and then Everything underneath it. It's going to be the timing statement. So in reality, we really started at zero here in terms of The capital account what was in there at the beginning then the owner invested That 50 000 so we're going to say it went up by the 50 So we're going to say I'm going to say flip the sign of this 50 And then it's going to increase by net income So net income is what we calculated up here at this three six eight four So that's going to equal the three six eight four. That's the story. I'm going to make this yellow All right And that will give us the uh Net uh, then we have draws. Sorry, then we have the draws So we found a home for everything except for now the draws The draws I'm going to pull in here Say that equals the draws now we found a home for everything and I'm going to Let's do this format this here my format into little Needs a little work there. So I'm going to say this is the increase And we could call I kind of like to think of it as the net increase But uh, I'm going to underline that So what we're saying here is we started at zero because it's the first month we invested the 50 000 And you might be asking well, how would I know if that's the 50 000 investment or whether it was 50 000 from the prior period It may have two components. It may it may have been uh that we had The investments and there was a prior period Well, you'd have to go back to the to the trial balance and the general ledger in order to figure that out If we went to tab one and we went to the capital account here And we drilled down on the capital account Then let's see Capital we say oh, there's that number Where did that come from in terms of the data the formulas and I can say well that Came from there And that was an investment in terms of quick books We can we can also kind of drill down on the equity number if we go to the trial balance and we're drilling down on the equity that 50 We can then see that transaction and drill down on that transaction say what happened there And so those are some ways that we have to kind of go back into the data and figure out what is going on Okay tangent. All right So now we're going to say that the net increase it went up by the 50 It went up by the net income and down by this number So again, if we summed it up, it wouldn't be right right if I summed this up like often what happens We'd get a number that doesn't match This number a number that doesn't match if we just highlight all the Accounts that are blue all the equity accounts the 41 Why not because these are credits these are debits and in plus and minus formats These are increasing net incomes increasing. This is decreasing. So we might even call this less Draws So the formula then should be equals the 50 plus the 3684 minus This 12 and that'll give us the 41 then I'm going to copy this Paste it here and All right, I'm going to copy this paste it there and then I'm just going to change the end date to the 31st And of course, this is just the zero plus the 41 680 The 41 680 then is this number 41 680 So again, if I could just highlight all this down, that's the 41 680 which should be the end number On our statement of equity that end number including net income Which is just a grouping of all the dark blue accounts revenue minus expenses Which has been reported on the income statement And the equity which is not part of net income But does decrease the equity. So there's the there's the draws here That's a I said draws draws is not part of net income, but does decrease equity All right, so there's that so now we've got the balance sheet ties out How does the balance sheet relate to the or how does the income statement and the statement of equity relate to the balance sheet? They're part of this number They're telling the story meaning the income statement net income will tie into the statement of equity The total statement of equity ending number will then tie into The balance sheet anytime you see a financial statement That's the first thing you should check to see if you're looking at anything that makes sense If that's not the case what you're looking at Doesn't make sense. All right, so now we found a home for all of this stuff here And if we compare that to quick books then We got our trial balance and we looked at the balance sheet So here's the balance sheet assets and they put it assets on top liabilities and equity on the bottom But assets on top liabilities and equity on the bottom Here's the equity section given us that 41 684 quick books gives us some kind of breakout They tell us and this is not traditional again. This is quick books tell us. Here's the net income for the time period Here's the draws We're going to find those numbers That's how the other statements are tied into the balance sheet quick books is trying to help us see How the other financial statements are part of the balance sheet So then we're going to go to the profit and loss There's that three six eight four and the statement of equities I won't I won't draw up the statement of equities at this time But the statement of equities in this case is basically being broken out in trial balance in terms of The balance sheet because they're giving us the detail of the draws And the net income also note that in order to really get this right Like even though the the balance sheet is as of a point in time If you customize it you need to have the date range really as a five one in this case To to make the That point on the equity section correct meaning like if this was were a year's time period The ending equity number would be right But these numbers might only be representing last month And if you want to change that you do need a date range Which is one reason we don't have those numbers usually on a on a balance sheet because the balance sheet is as supposed to be As of a point in time and not have a date range this number And uh, this number are not permanent accounts, but temporary accounts, which is why they're not typically on a balance sheet But in any case those are going to be the How we put this together So again, most people aren't going to spend a lot of their time putting something like this together Unless they work in public accounting Because in public accounting the job of course is to Reformat that information so it could be very possible in public accounting Where we take the quick books numbers we put it into a trial balance We adjust it we make any adjustments that we think need to be made and then actually You know, but you generate financial statements or compile financial statements in a format that that can then be Represented so that could could well happen even if quick books is being used But if we're just putting the numbers into quick books We need to have some understanding of of this information as well so that we know how to set it up in quick books So that we know how the the numbers are going to be input if we can put the data into quick books And do a bank reconciliation Then we're doing pretty good then it's just a matter of how are we going to format these numbers In quick books so for small businesses if if we're able to get all the data in there and reconcile That's a key thing Then you have some confidence that the numbers are all in there And then it's really a matter of where those numbers are going to be formatted meaning Did you put them into the right categories? They're all going to be in there somewhere You'll be in balance But are they in the right categories and if you do all that you're looking pretty good And then the next step would be the adjusting processes had to you have the adjusting entries in there How many adjusting entries, you know, do you need to do a monthly or what just an entries do you need in order to get the data That you need for decision making But those are how those two are related next time what we will do is we'll take the financial statements and these are done now So we're going to go to the closing process You don't have this tab on here, but we're going to go to the closing process here And we're going to close out the financial statements to be ready for the next time period And we'll see how quickbooks does that and the pros and cons to just the general format of the way Quickbooks does that because it does cause some problems sometimes. All right, that's going to be it