 QuickBooks Online 2024 Budgeting Overview Get ready, some coffee and some trail mix because we're hiking on QuickBooks Online, our audit trail to success. Here we are in our Get Great Guitars 2024 QuickBooks Online sample company file we set up in a prior presentation. We're going to open up the major financial statement reports, the balance sheet and income statement as we will do every time the reports located on the left hand side. Within the favorites, we should always have the balance sheet in the favorites, right clicking on it. We're going to open a link in a new tab that we can see up top. We should always have the profit and loss or income statement in the favorites, right clicking on it. Open a link in a new tab and I would argue we should have the trial balance as well, right clicking on it. In a new tab, but if you don't have the trial balance as a favorite, you can search for it up top. Let's go to the tabs we just opened starting with the balance sheet. I'm going to close the hamburger for a little bit more space and then we'll change the range to the range where there's data in this particular file. That being from 010124 tab, 033124 tab, I'd like to see the months broken out separately. Therefore, I'm going to go from totals to months and then run to refresh the report. Tabbing to the right, same thing. I'm going to close the hamburger. I'm going to change the range to the area where there's actual data in this file. 010124 tab, 033124 tab, selecting the dropdown to see it month by month broken out, running to refresh it. There we have that one. Let's tab to the right, same process. I'm going to close the hamburger, closing it, changing the ranging, 010124 tab, 033124 tab. I'd like to see it broken out by months and run it. Okay, first a word from our sponsor. Actually, we're sponsoring ourselves on this one because apparently the merchandisers, they don't want to be seen with us. But that's okay whatever because our merchandise is better than their stupid stuff anyways. Like our crunching numbers is my cardio product line. Now, I'm not saying that subscribing to this channel, crunching numbers with us, will make you thin, fit, and healthy or anything. However, it does seem like it works for her. Just saying. So, subscribe, hit the bell thing and buy some merchandise so you can make the world a better place by sharing your accounting instruction exercise routine. If you would like a commercial free experience, consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com. Let's go back to the balance sheet and now we're going to be thinking about the budgeting process. So a couple things just to note about the budgeting process starting out. One is that it's not really a traditional thing that falls directly and squarely in the accounting department's area. It's going to be crossing the lines between what the accounting department does and what basically the management does. And that's because, of course, the budget has a predictive element to it predicting what's going to happen into the future. And the accounting department's main job is to try to record the transactions as they are happening, meaning past transactions and current transactions that are happening with the help and the use of the forms broken out by cycle, which will record the journal entries which create the financial statement reports, balance sheet and income statement reports. The bookkeeper and accounting department also communicates with the people that they do business with and typically that might be done with the help and use. I'm going to the tab to the left of the centers, meaning the sales center or the customer center. We can communicate with the customers and then the expenses center or vendor center. So we can communicate with our vendors who are purchasing stuff from goods and services and if we're processing payroll within QuickBooks, the payroll center so we can help to facilitate communication with our employees. So when we get to the to a budget, now we still have a format that looks like financial statements, but they're not for past data, they're for future data. Therefore accountants are quite useful for the construction of the of the budgets because they know how financial statements are built better than even like finance people typically because they understand debits and credits and how these reports are linked together more intimately most times than someone who deals in finance who never really dealt with the building of the financial statements just with the interpretation of them. So the accountant will often still be involved, but you're also going to be needing to pull in management. So if you're a bookkeeper then and you're doing bookkeeping for a client, then you could do basic budgets based on the prior year information and that might be something that would give some minimal usefulness to you. But to really do a comprehensive budget, you would need more information. So it would be kind of unreasonable is what I'm saying is for a client to just say where you should just be making quality budgets based on just the past information. You can't really make a quality budget based on past information. You can just make a budget that's been based on past information. You'd have to communicate with the client to then get their input to basically create the budget that's going to give you information that might be more accurate or give you a goal to shoot for in the future. If you're working on your own books, then of course you can put the two hats on, right? You're doing your accounting and then you're also going to be thinking how can I put my management hat on as well as my accountant hat to figure out what the budget will be going forward. If you're working in a corporation, then the accounting department will probably be on part of the team that is going to be in place to help to do the budgeting because the management of the people that are going to try to make all the bright ideas on what they're going to do to make things better and then you as the accountant are often going to be there trying to figure out what that actually looks like according to their projections into the future. So that means that really what happens with the budget is first we often think about the profit and loss budget, right? Because the profit and loss is the performance statement. So in other words, we have income and expenses. The income and expenses are temporary accounts in that they generally only go up. Income goes up during the month or year. Expenses go up during the month or year. And then we reset them in a similar way like if you were driving a car for a day and then or a year even and then you wanted to reset the odometer to get back to zero to see how far you're going to drive in the next year. That would be similar to what happens with the income statement. If I change these dates up to the next year, 010125 to 010125, there's nothing in it, right? It's gone because we're starting from zero and then we're counting up in all of the profit and loss reports. So I'm going to go back again 010124 to 033124. So now note that the information that's being populated here doesn't like go away. It gets condensed and becomes part of the accounting equation. It's all part of the accounting equation, which is on the balance sheet. So in other words, in the balance sheet over here, we have our profit and loss or income. Here's the net income that's being brought into the income statement. And if I was to, I mean the balance sheet and you can see the net income, it would close out then to equity the equivalent of retained earnings. So if I bring this one up a year to 010125 to 010125, this is as of a point in time. Those income statement accounts, this income line item, rolled into owner's equity, which is basically like retained earnings if it were sole proprietorship. So the whole income statement is a performance statement breaking out information about the performance of the company. When we think about the company from the accounting equation perspective of assets minus liabilities equals equity. That means equity is kind of like the book value attributed to the owners in total, whether that be a sole proprietor, a corporation, a partnership, it's in total. Then we have to think about how it would be broken out if it was a corporation versus a partnership or whatnot. But in total, that's the total. And then the income statement is giving us performance information usually about the prior year about what we did in order to get to this point in time, assets minus liability, book value, equity. Okay, so let's go back then. I'm going to change this again, 010124 to 033124 and run it. So that means the first report we think about is usually the income statement when we're projecting into the future, because we're trying to think, what's our performance going to be in the future? What's our income going to look like next year as compared to last year? What are our expenses going to look like next year as compared to last year? Now, when you think about the budgets, you can get very detailed on the budgets, and we have whole courses if you want to look into budgeting in more detail, or we can get to a general budget that could give us something to shoot for. So it's really a question of how detailed you want to be getting into the budgeting process. But oftentimes we start thinking about the income statement, and usually the starting point is to say what happened last year, right? So we're going to use the past data, but that's not the ending point, because then we're going to decide what we're going to do to change it, hopefully to improve it. And this is where all the bright ideas come from all the different departments, or from your own head, if you're looking at it, the accounting department, or the advertising department's always going to say, predictively, oh, you know, if you give us more money, then what we'll do is we'll spend it on a bunch of advertisements, and then we'll, and that'll generate more revenue. It works every time. Didn't you see what happened with Bud Light? You know, it's like, you know, that's always going to be the scenario, right? They're going to try to say, well, you give us, and often time it works, right? So that's going to be, so then the budget would be, okay, we're going to take last year's numbers, and we're going to predict revenue is going to go up because you spent more money on ads. You spent more money on advertising, right? And then you've got the people that are in the product design, or the engineering area, or whatnot, who are saying, hey, you know, maybe we should actually spend more money on making quality stuff. And like, you know, like you've got people like in Hollywood or something, you've got these crazy people that are like, you know, I don't know. Maybe we should tell like a decent story or something and like spend money on people that know how to like write stuff that is enjoyable. I mean, or just copy like old comic books or mongas instead of changing them and stuff. Maybe we should, and if we did that, then our revenue would go up. But obviously they'll be shut down. They'll be shut down. And the owners will be like, I don't think that's a good idea. Anyway, so we could have something like that in there, right? So we're going to be, and then of course we have to take into consideration, what's the economy going to look like next year? Is there going to be inflation and whatnot? Is that going to impact? What if we increase prices in the current year? We might have less sales that we make, but we could maybe we'll generate more revenue because we have a higher cost or maybe we decrease prices and so on and so forth. So then we have to have all this added information of what we're going to do to change things and then budget for it. So how do we do that within QuickBooks? Well, typically you're not going to do all those little tweaks within QuickBooks. The best tool for that, in my opinion, is Excel, right? So what you would typically do is take prior period numbers and export them to Excel. So I might take, in our case, we only have three months of data. If we had a whole year of data last year, you might export that to Excel as the starting point and then use Excel as your tool to run all these different scenarios, right? And you can do a whole lot of different methods on how you can play with these different scenarios. And then once you have the budget from Excel, you're going to want to import it back into QuickBooks. And so why would you do that? Because QuickBooks is good at running comparative reports, which is the main thing, right? As time passes, we would like to say, hey, did all that advertising money that we spent, like when we hired that advertiser from Bud Light, did that really increase the revenue on our side and whatnot? And we can compare and say, wait a second, I think maybe we didn't do the right move. And then maybe we should change based on the numbers that are populating in here. The entertainment industry will be like, I don't know if we took the right coin. Anyway, and so then we can do comparisons and adjust it. So that's going to be the general idea. Now, note that the income statement is the performance report. We could do the similar thing for the balance sheet, right? So the balance sheet is where we stand after a certain period. So we might make a balance sheet on a monthly basis or a quarterly basis. If the income statement performs the way it's going to perform, then the balance sheet will be kind of like the end result of that. It's a little bit more complicated than that because you could have balance sheet investments like you invest in equipment and stuff. So if you did all the budgeting process, you would have your production budget and then you'd have your income statement. You'd have a cash flow budget and so on. And then you can have your balance sheet, which will be the end result. So the balance sheet is a level up of complexity oftentimes for basic type budgeting. But you can do the same kind of thing and say where will we stand after a month or a year worst of time if what we budget to be happening actually happens. And again, we probably do that in Excel and then import it into QuickBooks if we could so that QuickBooks can do actual comparisons of what actually happens as time passes to what we budgeted to happen. That's what QuickBooks does well. Now, notice on the income statement, there's a couple of approaches that you might start with. If you're going to export the profit and loss to Excel and then adjust it and then import it back into QuickBooks, you might say, OK, well, maybe I'll take all of last year's data and I'll export each month just like this. And that could be useful in the event that you have a seasonal business because then some months will generally make more money than other months. So that's one method you could use. But you also might be saying, hey, look, our business is changing rapidly. Maybe we're in a situation of growth. If that's the case, then I might not want to export a whole year's worth of data because January will no longer be reflective of what's going to happen in the future because we're doing better in December than January. So in that case, you might be saying, OK, I'm just going to take December's numbers or possibly be more conservative and take the year to date numbers. And then so you might take the whole year's numbers and then divide it by 12, right? So that you'd say each month I'm going to take the total and divide it by 12. And that's what I think the average is going to be. That'll be my starting point. Or again, if you're growing, you might say, hey, I think December's what is going to happen. December's my biggest month. We've been growing from January to December. I think the growth trend will continue. I'm going to start with December's numbers and then make adjustments from there based on what we're going to do in the future. So those are just some ideas on where maybe your starting point would be. Also note that I'm not going to export the actual profit and loss. I'm going to export the trial balance and then adjust it because the trial balance doesn't have all the subcategories. So when I model this in Excel, it'll be easier if I just have one line of income statement accounts, income and expenses. So we'll do that in future presentations. Now the actual budget, if we go into the first tab, we're going to say if there's a couple of ways you can get to the budget. But if I hit the drop down up top, this is one way you can get there under the tools, you have the budgeting. Notice where the budget is not. The budget is not under the normal plus button over here typically or it's not in the normal areas over here because the budget isn't part of the normal accounting cycle. The budget is something that is going to be done possibly periodically, but it's not really even part of the accounting cycle. Again, it's kind of a mixture between the accounting and finance areas or management and accounting. So if it's going to be up here, we have the budgeting. We can make multiple budgets so it says here plan better with budgets. Manage all your profit and loss and balance sheet budgets. Now the balance sheets are fairly new within QuickBooks Online. The desktop version had the capacity for balance sheets, but they're leveling it up here with the balance sheet on the online. So good for them, good for them. So use the latest data available in QuickBooks to make budgets. See if you're on track comparing actual performance with budget numbers. Bring in profit and loss budgets created elsewhere into QuickBooks. So then we would of course, if we had the import, we can import, but we would and we might do that later after we build the budget. But right now let's just take a look at it. How do you want to set up your budget? Select your preference options so budget type. You have either won the profit and loss or the balance sheet, which is great. And then you have the period that you can be choosing. So January to December of 2024 is the default and then we've got budget format. Consolidated or subdivided budget and subdivided to create individual budget based on location class, department or customers. So all of those are kind of specialized areas, meaning you might have class tracking on or location tracking, helping you usually to think about more of the income statement, income statement accounts broken out by location or class. We have a whole nother course or section on class tracking and different uses of it. So if you want to take a look at that, we're not going to focus on that here available set up options and then you could import the budget and we could then continue from there. We will continue from there in future presentations. Our general goal here, what we're going to do, we're going to export basically the income statement, but we'll do it with an actual trial balance and then adjust it. We're going to take our period in numbers for February, because we only have two months of data in our practice problem. And we'll use the method of taking those two months and then dividing it by two, right? We'll take the income divided by two and say that's my average monthly income over the two months that I have thus far. That's what I'm going to use to start my budget into the future and then we'll make adjustments from it from that point, budgeting out 12 months into the future. However, we're actually going to kind of pretend that these two months were the last months of the prior year, November and December, so that we can get our numbers, our budget from January through December, import it back into QuickBooks and then we can run budget versus actual reports where the first two months will have the budgeted numbers that we can compare to the actual. So hopefully that makes a little sense. We'll try to explain that in more detail as we go through the practice problem, which we'll start doing next time.