 QuickBooks Online, balance sheet vertical analysis. Get ready to start moving on up with QuickBooks Online. We're gonna be using the free QuickBooks Online test drives, searching in our online search engine for QuickBooks Online test drives, selecting the option that has Intuit.com in the URL, Intuit being the owner of QuickBooks, support accounting instruction by clicking the link below, giving you a free month membership to all of the content on our website, broken out by category, further broken out by course, each course then organized in a logical, reasonable fashion, making it much more easy to find what you need than can be done on a YouTube page. We also include added resources, such as Excel practice problems, PDF files, and more like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. We're gonna be using the United States version of the software and verify that we're not a robot. Scrolling in a bit by holding down control up on the scroll wheel currently at 125% on the zoom and noting that in the cog dropdown, we're currently in the accountant view as opposed to the business view. We'll try to toggle back and forth between the two views so we can see where things are located within each of them. Right-clicking on the tab up top to duplicate it as we do every time to put our reports in. Right-clicking on the tab up top to duplicate it again. And then I'm gonna go back to the tab to the left as the one to the right is thinking. Reports on the left-hand side open up the balance sheet report. Go to the tab to the right as the one to the left is thinking. Reports again, this time the profit lost, the P to the L, the income statement. Closing up the hamburger, otherwise known as the hamburger and range change. We're going from 01, 01, 2, 2, tab, 12, 31, 2, 2, tab. Run it to refresh it, tab to the left. Close up the hamburger, scrolling up top to range change. The ranges, they are changing. 01, 01, 2, 2, tab, 12, 31, 2, 2, tab. Not changing by much at this point because it was only a day off or day different, but run it to refresh it. There we have it. That's the set of process that we do every time. We're now focusing in on the balance sheet once again. Noting that the balance sheet and the income statement are the major two financial statement reports. We've been taking a look at variance on the balance sheet which can typically be applicable to other reports as well. Last time we looked at a horizontal type of analysis comparing multiple periods and then we can take a subtraction if we're comparing two periods and do a percentage increase or decrease column. So that's a horizontal analysis. Now we can think about a vertical analysis comparing each line item to some relevant total on the balance sheet that will typically be the total assets, total liabilities, and equity. Now note, this is another one that's common to be able to do with different reports but you wanna make sure that you know what kind of report you're dealing with to think about what the best type of vertical analysis would be. So in other words, on a balance sheet we will typically be comparing everything to total assets or total liabilities and equity which are the same number, assets equal liabilities and equity. If I go on over to the income statement then it gets a little bit more confusing in some ways because we're gonna be comparing to basically usually to income and we'll talk more about that later but the reason for that is because on the income statement, on the performance statement, income you'll recall is the goal of the business and therefore it makes sense to kind of compare everything in relation to income. On the balance sheet, you'll recall that if I bring this down to its bare bones we've got the assets equal liabilities plus equity. The assets represent what we have in the business in order to generate revenue. They're basically investments, right? We're investing in our business. Most of the assets possibly being put in property, plant and equipment because that's what's gonna be used in order to generate revenue in the future. So then the question would be well, how much money, how much kind of, because if I wasn't investing it in the business if it was just cash flow and the business wasn't earning me money then of course I would take it out and I would put it somewhere else where it can earn me money like other stocks and bonds or something like that. So the assets are kind of like our investment in the business to generate revenue. Well then the question is what's the percentage investments in basically my assets, right? And then we can do the same thing on the financing. How much financing or how am I financing the assets that I have with liabilities, third party, banks, loans or equity? That's kind of what a vertical analysis will do. So let's take a look at it. It's fairly simple to build a vertical analysis. We could just go to the drop, not that dropdown this dropdown and we want to do percentage of the columns percentage of the columns and boom and run it. And that's basically it. So now we've got a comparison column. So if I pull up the trustee calculator, trustee calculator and we check it out, then we can compare say the bank account. So bank accounts at 2001 divided by and we're comparing it all to the bottom line to the total assets. So we've got total assets right there divided by the 23436.29 that comes out if I move the decimal two places to the right 8.54%. So we do that all the way down. Why is that useful? Because it's kind of like, you can think of it kind of like a pie chart analysis if you're comparing investments and you're investing in stocks and bonds and you're trying to basically compare your investment strategy to other investment strategies to a benchmark investment strategy or to a professional investor like a Warren Buffett or something, you can't compare the dollar amounts because they have more money than you, you always go to the percentages. So whenever we're measuring performance that's often gonna be the case. And again, we can see that when we're measuring performance in job areas such as professional sports. We have to do the percentages in order to get meaningful data oftentimes. So similarly, if I'm in a business I might be trying to benchmark to the industry average. So I might try to say what's going on on average on the industry, I can't look at my dollar amounts when I do that so much, I have to look at the percentage. What percentage is the industry having their cash account? What percentage does the industry have in their fixed assets? And remember that if you're in a business that doesn't have a lot of fixed assets and there's probably not a lot of barriers to entry in it, like YouTube video creation, right? There's nothing, you buy a few things but there's not a whole lot of barrier to entry within it. And therefore you might not have a lot of fixed assets but the trade off to that is usually that there's a lot of competition in a business like that, right? And then the ones that do have a barrier to entry maybe you're gonna, you invented something or whatever you're gonna do, farming or something like that, well then you need or construction or something, then you need substantial equipment in order to do that. And that's, so now you're gonna be investing in the equipment in order to use the equipment to generate revenue in the future. That's basically the point of the investment in the equipment but you still wanna have enough cash so that you're able to pay off the current liabilities. So then oftentimes depending on your industry the layout of how much money is invested in or how much cash do you have on hand? How much accounts receivable do you have? Accounts receivable is important because you wanna think about how easily you're able to turn over the accounts receivable to get the cash presumably getting the cash if you're still growing so that you could put it back in the business possibly by buying the equipment, more equipment which maybe can make you more money in the future would be the general idea. If you're already large enough and you're not really in a growth stage then you wanna make money of course to take it out for personal use at that point. So then you can compare different industries and try to see how much percentage they have in fixed assets versus accounts receivable and so on and so forth and try to benchmark your production to that. On the liability side, we're comparing everything you could say to assets again but really we're comparing or to the bottom line of liabilities and equity. And so liabilities and equity because you're getting into kind of ratio analysis now because you can think about how you're financing your assets here, you're financing your assets either through third party loans, you took out a loan to get it or you have accounts payable liability or through your investment in the business, your value in the business which either got there from you investing money in the business and or the business accumulating revenue accumulating money, accumulating assets making revenue that you didn't take out in the form of a draw or dividend if it's a corporation and therefore your value that is yours is in the business. So that's how you, so the assets and the liabilities and equity are two sides of in essence, the same coin. So that's the general layout and then we can do so. Now also just note that if you're a bookkeeper and you're trying to give this information to a client then the question is we've got a whole lot of variance now because we saw the horizontal analysis where we can compare month to month, quarter to quarter this quarter versus the prior quarter and then we could do a vertical analysis here and I could try to compare multiple things on the vertical analysis. For example, if I have the date range for the full year I could then say I wanna see it by quarter by quarter with the vertical analysis and run that. So now I've got our quarter by quarter there's only data in the last couple quarters but you can see now we've got a combination of a quarter by quarter breakout and the vertical analysis. So this information actually gives you the same data as of year end. So there's a couple of ways that you can think of this if you're batching this together for a client you can try to have as little information I mean as much information on a single report and not have duplicate information if you wanna try to streamline stuff or you can think of it, hey I don't wanna overwhelm my client on the first couple pages so I'm gonna lead them into the more complex reports. So often times you might for example try to construct your report so that you have a simplified balance sheet and then maybe a standard balance sheet and then maybe some of the comparative balance sheets comparing two periods and then maybe some balance sheets that compare multiple periods like multiple quarters for example that's one way that you can basically think about it or you might say, hey look I'm just gonna have this balance sheet that compares multiple quarters and that's one of the only balance sheets that I'm gonna use and maybe have some other comparative balance sheet that show different information than this rather than have repeat information with a summary balance sheet and then a quarter by quarter comparative balance sheet which has the data at the end here for the quarters it depends on who your reader is for that information. If you're actually presenting to someone it's often best to start easy start simple and then dive into more detail as you kind of draw them into the discussion. So and also just realize that now we have a whole lot of different reports that we can be running we can be running the horizontal for two periods I mean, we can have multiple periods we can then run a vertical analysis for one period for multiple periods so you gotta be picking and choosing the reports that you want to be running and this is just the balance sheet report we're also gonna talk about the income statement or profit and loss which has a similar number of variants that we can then be running and then of course we have the other reports that we could run as well to supplement it as well although a lot of the other reports might be internal most of them in nature but some of them might be something that you would want to provide on a month in basis or quarter in basis as well. I'm gonna customize this as has been our normal custom I'm gonna put the without sense I'm gonna put the brackets around it and make it red I'm gonna call it not just a balance sheet but I'm gonna call it a vertical analysis balance sheet and then I'm gonna get rid on the footer of the date, time and report basis and run it so there it is and then I'm gonna bring us back to just the totals only and run that so now we've got the totals only so that looks good and there it is and if I was to preview it and in the print preview like right there the footers are gone so that looks good we'll talk later about how we might bundle these together in one PDF possibly to email it to someone or provide it to someone in some way with other reports and we'll combine like the Excel and the PDF printer to put it on one file so that'll be interesting you wanna be here for that now if you save this you could save the customize, save it so we're gonna save it here and that means that if I go into my reports on the left I'm gonna refresh this and go down to the reports then in the customize tab we've got our customized reports so we don't have to keep on formatting it every time you might wanna think about your external reports group them in a customized fashion in such a way that you can then easily generate them on a quarterly basis, a monthly basis, a yearly basis so just a quick look at the cog dropdown and the business view I don't think we've gone anywhere special here so we've just been in the business view we've been in the business overview and then in the reports so same place or just a different location in the business overview for the reports