 QuickBooks Online 2024. Short term investment, sales and gains. Get ready and some coffee because we don't just do data input. We get totally into it. We're into it. QuickBooks Online 2024. Here we are in our Get Great Guitars 2024 QuickBooks Online Sampled Company file we set up in a prior presentation opening up the major financial statement reports like we do every time the reports on the left hand side within the favorites we're going to be right clicking on that balance sheet report to open link in new tab right click the profit and loss to open link and new tab and one more time right click in the trial balance to open the link in a new tab if you don't have that trial balance in the favorites you can search for it in the find area let's go to the tab to the right close up the hamburger and change that range we're going to go from 010124 to 022824 for the second month and I'd like to see it broken out on a month by month breakout we're in the second month of operations running to refreshing let's tab to the right repeat the process closing the hamburger range change 010124 tab 022824 month by month breakout on the left first a word from our sponsor yeah actually 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it down a bit okay it's an improvement 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 and then we'll run it again let's go to the tab to the right again closing the hamburger and changing the range in 010124 tab 022824 tab month breakout month by month and then we will refresh the report let's go back to the balance sheet and this time we want to be taking a look at this short term investment so you will recall quick story to think about how this short term investment got on the books where is the short term investment by the way it's right there so how did that get on the books so quick recap remember that we have our assets liabilities and equity when we started up the company file the first thing we typically need our assets in the form of cash typically we need the money so that we can buy the stuff that we need to make revenue in the future which typically will be things like inventory and the fixed assets property plant and equipment how are we going to get that well typically we can either go the liability route meaning we take out loans or we can go the equity route we put the money in our sales or we take on partners or we incorporate and take on shareholders or something like that so what we did is we financed the company through equity and liabilities to get the money to then purchase the fixed assets and the inventory now if we have excess money on the books then note that what what we typically are not thinking of doing is for a business to just hold on to the money within our business unless we have a business that's an investment business in other words our business here is not a business to generate income through dividends and interest it's to sell guitars so the cash that we want in our system we want it to be there in order for us to invest in the future in order to sell the guitars if we generate revenue through sales for example and we get excess cash we start cash starts piling up that would be great what would we typically want to do with that well our choice would be we can put it back in the business and in the form of investing in fixed assets and inventory or if i don't need to do that everything's running smoothly then i would take it out of the business and give it to the owner in the form of draws if a sole proprietorship or dividends if a corporation so that the owner can then take the money and do whatever they want to do such as invest in the stocks and bonds on their own to get some type of return the point of the business file is that it has a separate books from personal or individual books so that's the general concept here so but it might be the case where we have some excess money that we plan on spending soon but we're saving up the money possibly so i can expand on my building or buy a building or buy more equipment and as i'm holding on to the cash for that purpose i might put it in to say a short term investment such as stocks and bonds right so i just want to make that differentiation between our personal investments and basically our business investments that said there might be some cases where a small business wants to use quick books for both business and personal purposes uh if that's the case then ideally it would be nice to have two the best bookkeeping scenario would have two files of quick books but then if you use quick books online you'd have to pay for the two files of quick books so that you can do the bookkeeping on the individual side and keep it separate from the bookkeeping on the business side individual bookkeeping is basically the same concept you still have the double entry accounting system but the the purpose of the of the business in that case or your personal finances is different it's not simply revenue generation it's to live good right so that makes it a little bit more complicated actually that's why we break out the business as a separate entity so we can focus just in that part of our lives on revenue generation right that's what the books are for but uh you might be able to combine the books if you needed to with the help and the use of class tracking so if you have class tracking that can kind of break out the income statement typically is the main form we think of break it out by class so you'd have two columns one for the business stuff one for the uh personal stuff and if you're small business all you need to do is this is for taxes to get the schedule c uh for your taxes which is basically an income statement so you might be able to do that most bookkeepers don't like that because it mingles things up and it makes it a little bit more confusing if you don't if you're not intimately aware of what purchase is you're making because you have to have that out added allocation of all your expenses between was it a personal purchase or a business purchase if you want to get into that in more detail we have uh other courses and or sections that talk about class tracking in more detail if you want to look into that uh so that's how we got this investment on the books so now we have this investment here uh on the books now whether once you have the investments on the books there's a couple issues and these are issues whether you're doing this on the personal side of things or on the business side of things one is that people often confuse the investments for stock in stocks and bonds and the use of the quick books software as though the software is there to kind of track the day to day kind of investments or the activity that's not what quick books is there for there's other ways you can do that you can go you can go on to online software or to the people that you are actually investing in such as if you're investing with vanguard or e-trade or something and look at the funds to see the performance of the funds the point of putting them into quick books is that you want to be able to to generate reports with them on the balance sheet and the income statement periodically most likely at the end of the of the month or uh or the year so that you want to make periodic adjustments in your quick books file you're not using quick books to track day to day types of investments so that means that your investment categorization is is probably not going to be too detailed you don't want to be breaking up breaking out every stock or bond most likely in quick books that's going to be quite tedious to uh to keep up with you want to summarize them some ways you might summarize them would be one you summarize by the the institution that you're investing with such as a vanguard or a v or e-trade or bank of america if it's with your bank or something like that and even though you have different types of investments stocks bonds different types of investments within there you can break it out by institution because then you can get the statements at the end of the month and you're able to make adjustments periodically by institution and then if you want to break up the detail you can you can do so on those institutions pages to see the activity of each performance of stocks and so on and so forth also just realize that oftentimes when you're investing you know if you're a small person you may want to invest in a mutual fund or something like that an etf that has a targeted fund which might have both stocks and bonds within it and possibly even change the mix between the stocks and bonds as you get closer to a retirement that's kind of like the easiest type of thing to do and that will make it so you don't have so many funds possibly but still have some diversification but we won't go into the details on your investing strategy if you if you are doing a lot of trading and stuff then again you probably don't want to record all the activity you want to record like the summary of the activity typically on here now you could also try to break out based on bonds versus stocks and that kind of thing but if like I say you have some accounts some investments that have both stocks and bonds in it that's going to be a little bit more difficult to to do to make that kind of breakout now if you're on the personal side of things note that a lot of your investments might be under the umbrella of a retirement account like a 401k or an IRA or something of that nature in that case you probably want to break out your investments between short-term investments and long-term investments meaning if it's under the umbrella of an IRA you can't take it out so you don't want to have it in possibly current assets because those look like assets that you might be able to get some get access to in some time you want to put them in long-term assets because you can't get to them without being hit with penalties and interest generally that's the general idea so that's another way that you might want to break them out okay so now also just realize that there are other softwares that can give you the balance of of your financial institution balances so for example if you wanted to get a report of all of your ending balances from financial institutions which includes bank accounts savings accounts the investment accounts stocks and bonds typically depending on where you're investing in and credit card information loan information like mortgages and stuff then you can use other software even excel sometimes i think you can even use at this point to basically pull that information from the financial institution and it'll pull the ending balance meaning where you stand at if any given time that's great you might ask why doesn't quick books do that quick books doesn't do that because it's not designed to give you the ending balance it's designed to create an income statement if it just gives you the ending balance then you're losing all the detail you're not creating the income statement it's just like with the with the checking account up here like we want to see all the transactions in quick books in the checking account we don't want to just see the ending balance being pulled in to quick books because then we don't have the income statement we're trying to build the the whole financial statements from the transactions which gives us the activity of what is happening in terms of an income statement right so so those other softwares are great to use in conjunction with quick books so that they can give you the ending balance of your financial transactions at any given time which you could use to make periodic adjustments or to double check your balances in quick books but quick books isn't designed to pull in the ending balance quick books is designed to give you the detail of the transactions all right so there's that issue now the other issue is with the investments when you buy the investments you're going to put them on the books as whatever you bought them for so we did that by reducing the checking account and we then put it in as one lump sum in this investments short term stock and bonds now then as time passes the investment value is going to go up and down the question then is should we be adjusting our books up and down with the investment value and the argument is closer to be able to say yeah we could do that with bonds if they're traded or stocks if they're traded on a market why is that the case notice that we don't do that with fixed assets at least oftentimes in generally accepted accounting principles in the United States why because if you have a car for example the car might go down in value over time and you might be able to look up the fair market value using like a kelly blue book or something like that to try to determine what the actual value of the car is but it's not perfect because every car is unique if you didn't treat the car well or if you have more miles on the car or so on and so forth then it's going to be worth less than if it then in other circumstances if you've repaired the car that it's going to be worth less so so it's just an estimate down here if it's a building for example the building could go up and down dramatically and if you allow someone then to adjust the value of the building based on an appraisal which is just an estimate you're giving a lot of leeway to people to be able to appraise high or low based on what whatever they want to do based because there's going to be a range of numbers that you would think might be reasonable given the fact that each building is unique that's not the same with stocks the beauty with stocks is that every stock is the same and the fact that all the stocks are trading on an exchange at least tells you what the value of an individual stock is at that point in time so it's not perfect still because note that if for example you're trying to value the stock of say someone of like an elong musk owning tesla and you say well the stock is currently trading for so much on the stock exchange and he has so many shares of stock therefore his value is this times this x well you can't really do that because if elon musk was to sell tesla stocks the value of the stock would plummet right because he would have an influence on the market but for small investors that works quite well because we're we're going to say yeah you know if i sold my i could sell my stocks for whatever it's currently selling for therefore it kind of makes sense for us to make adjustments periodically possibly monthly or quarterly or yearly based on the investment statements that we have when we make those adjustments we would just do a journal entry so we'd hit the journal entry because cash would not be affected we could do a month in journal entry which would basically adjust this account for whether it went up or down and the other side then the question is where should it go some people will say it should go to equity because we don't want to put it on the income statement because you haven't actually sold it but that's confusing to most people most people would put it on the income statement because that's the easiest thing to do but instead of putting it up top in income then you might want to put it down below in other income the reason being because it's not part of your normal income operations if it's a business it's other income uh down below even if even if you're doing your personal books possibly your main income might be w2 income and then you make some income on investments so personally i would think then you might want to put it down below as other income so you get a subtotal of your operating income and then your other income down below now one more point on that you could also if you want to complicate it a little bit more you could say that i'm going to have my investment account that's what i paid and then create another account which would be a sub account of this investment account recording the gains and losses in that case uh you could then you can then track both the cost and the gains and losses which might help you to kind of think about what your capital gains or loss might be if you sell it because when you sell it that's when you're going to get hit with the taxes if you're in the united states okay so all of that said now we're going to imagine that we're selling this investment in our scenario so we put the investment on the books now we're going to we're going to sell it but when we sell it it went up in value so now it's worth more than twelve thousand dollars so if i sold it for just twelve thousand what would the transaction be an increase to the checking account of the twelve thousand and a decrease to the investment but if it went up in value i'm going to have to deposit the greater amount over twelve thousand i have to reduce the investment and i have some kind of gain which i'm going to which i'm going to call uh you know investment gain or something like that for the for the sale of the stock okay so now if i look at the forms to do that what form is designed to sell investments well there's not one because that's not that's not a normal cycle transactions that's not part of the customer cycle vendor cycle or employee cycle so the next question would be well is cash affected in this case cash is affected because we're selling the stock therefore i can use it a a deposit form basically because i'm depositing into the checking account if however cash wasn't affected because you just record in the unrealized gain or loss without selling it then cash wouldn't be affected and that's when you would default to the journal entry all right so let's go to the first tab and and do the transaction finally after that was a lot of talking it's a lot of talking really okay i know we're going to go to the plus button and let's do a deposit form i'm going to go into the deposit form and we'll say this is going to the checking account and let's say this happened on uh the second or let's say oh two oh two twenty four and then getting sick of your lip what's wrong with my lip my lip is i have a nice lip i don't know what i'm talking okay so let's go in here let's say we're going to say receive form this is going to be a short term let's say we're going to say short term investment so that's going to go down so i'm going to say the account is going to go down this is for the sale let's put a memo of investment and we'll say and then i'm going to put the amount in here which is going to be twelve thousand is going to go down and then we're going to say the other side is going to be i'll say gains now i'm going to have to make a new account so is there an account for gains and losses i highly doubt it right there's no account in here for investment gains and losses i don't think so i'm going to make a new one and so i'm going to go a new account and it's not going to be an income account or not a normal income i want to put it into other income the difference between these two being that other income will be on the bottom of the income statement rather than on the top of it dividend income maybe i'll just say other investment income and the difference between what we bought it for and what we sold it for could be like there could be dividends that we received from it there could be and those would we would record as we go there could be interest that we could record as we go and then there could be capital gains when we sell it meaning the the value of the stock went up we're going to imagine here that the value of the stock went up and so i'm going to call it gains on sale of investment investment income i'm going to say gains on sale of investment and so then i'm going to say that this will be not a sub account it's in other income that's what i wanted to make a point about all right boom so then and i'll call this oh what in the world okay then i'll call this sale of investment again and then this is going to be for 250 so that gives us a total of 12,250 okay so what's this going to do it's a deposit form we're going to imagine we sold the stuff which we might see come through the bank feeds if we did this with an electronic transfer but when it comes but then when we get the bank feeds it's at 12,250 why did we get that well it's not because it came from our customer cycle that didn't come from customers it came from us selling the investment that means the investment account has to go down to zero because i no longer have the investment account but it's only on the books for 12,000 the difference where did that difference come from we're going to imagine that it was capital gains the value of the stock went up over time and we sold it for more than we purchased for buy low sell high that's my marketing strategy that's what i do so then so the so that so that's it so let's go and save and close it and then we're going to go to the to the balance sheet and run it and so then if i go into my checking account we ought to have a deposit now for the full amount of the deposit 12,250 and then i'm going to go back and then the other side took the took the investment account down to zero so it was on the books and now it's off the books so we bought it and then sold it boom boom boom boom boom uh what happened uh i wanted to make this 010124 so there's the two transactions back off and then we're going to say on the income statement if i run it to refresh it we have the income showing here but it's down here in gains on sale of investment in other income so it's increasing the net income but and we could we could see just the February here right we have these expenses and then we had other other income so now we're still at a loss of 345 59 but i get this nice net operating income that should give us a better idea of what our actual operations are because this 250 is something that's a little bit you unusual it's not part of our normal operations we can't really rely on it we don't expect it to happen really again in the future so we need to include it but we'll put it on the bottom okay so there's the process now one other thing i want to mention is just with these investments you could have other types of income right if you invest in stocks then you're going to have dividend income so if you have dividend income then sometimes that will actually come through on the bank feeds so if you connect some institutions you can connect using the bank feeds and then you can pull in the dividend income as it happens and normally i would do a similar process with the dividend income in that we're going to record it as they happen and i would put it into basically other income down below which would be dividend income in other income as we generate the revenue if it was bonds interest income would be happening and you can do the same thing pulling it over here now oftentimes these accounts will generate dividend and interest income but instead of of giving it to you in the form of the checking account they might be just rolling it back into the mutual fund so in that case you you still might have the bank feeds that will show you the dividends and the interest that you can properly record to the income statement but then it's been reinvested back into the investment account so what that basically means is that this account for the dividends and interest that you rolled back in you should be recording a credit an increase to the dividend and interest expense and then this number right here should be going up because it's not capital gain you invested more money back into the into the business you bought more you bought more stocks right so there's three kind of things if you have stock well if you have stocks how are you going to generate revenue well they could give you a dividend if they give you a dividend then then you can record that as dividend income and then you or if you roll it back in you still recorded as dividend income but instead of increasing the checking account you're going to increase the investment because you invested more in it or some companies don't give us much dividends or maybe no dividends especially companies that are smaller and are trying to grow because they're reinvesting the money back in the business so so in that case the hope is that the value of the stock goes up at which in which case then you're not going to get the dividend but when you look at the next period you're going to have a gain possibly the value of the stock goes up so now you have an unrealized gain in the value of the stock increasing which which you can report periodically with an adjusting entry okay that's enough of that let's go to the trial balance and see where we stand let's run it we've got four legs now the debits and credits the debits and credits we're like a we're like a tiger now instead of just standing on two legs and we're just we're running forward because our business is like a like a like a leopard that's the fastest animal right we're like running light speed in case so we have the the balance sheet on top of the income statement so obviously assets cash is an asset count seville's an asset inventory is an asset investments is now off the books an asset payments to deposits an asset prepaid insurance is an asset accumulated depreciation contra asset furniture and equipment asset assets are what the company has liabilities and equity is who has claimed to that and then on the liability side accounts payable visa the institution visa by the way is another one of those accounts that is by a financial institution and if you use financial software it'll put that on your balance sheet as well if you if you use that soft any case we have sales tax liability we owe to the government and then to the federal government the payroll tax liabilities and then we have what we have our claim to our assets and that's the owner investment and the equity account and then the entire income statement which we can boil down to one number represented on the income statement of for the year to date number 7081 85 and if I was to take the credits minus the debits starting with the billable income that's what we should be getting and then if we were to roll that number into the equity by for example moving the date up to 2025 010125 010125 then you can see it's all part of equity right it's all part of equity it's just breaking out the income statement it's just breaking out the story of the last year which we want to do because oh what a story it's been and we'll continue with that story next time