 QuickBooks Online 2024. Adjust opening balances. Get ready because we're moving on up with QuickBooks Online 2024. Here we are in our Get Great Guitars 2024 QuickBooks Online Sample Company 5. We set up in a prior presentation continuing to lay down those foundational items necessary to do the normal accounting process. The normal accounting process typically including the entering of financial transactions with the help and use of forms found in the plus or new button broken out by cycle, customer or sale cycle, vendor or expense cycle, employee or payroll cycle. We communicate with these individuals, customers, vendors and employees with the help of the centers on the left, the sales center or customer center, expensive center or vendor center and the payroll or employee center. The foundational items which are the one-stop things, the things we do and then don't repeat on a periodic basis as we do with the forms data input and communication with the customers are generally found under the cog where we looked at the your company items as well as the lists. We're basically still continuing on with the list here which can also be found under the transactions, the chart of accounts. We've been adding account balances to our chart of accounts imagining that we had a prior accounting system which we want to end using as of the end of the prior period. We're imagining to be 12, 31, 2023. These are our ending balances and we're putting them into our beginning balances so that we can start the new system as of January 1st, 2024. We couldn't simply put one big journal entry in there although we were tempted to do so because each of these accounts might have special needs sub-accounts for example the inventory if using a perpetual inventory system. 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letters is more efficient than four so I trimmed it down a bit okay it's an improvement if you would like a commercial free experience consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com would also need the items of inventory the accounts receivable needing the sub ledger for the customers the accounts payable needing a sub ledger for the vendors and so on and so forth so what we did instead is we took these one at a time made this balance correct and then the question is well what does the other side do because it's a double entry accounting system you can't just put 25,000 in cash without also impacting some other account that's how the double entry accounting system works well the other side went to in some way shape or form the equity section so if we can get this number correct one at a time instead of in one big journal entry then the other side of each of those transactions got dumped into the equity section in some way shape or form what are those ways shapes and forms that it might have been dumped into the equity section in well it could have for example with the accounts receivable created an invoice and the other side got dumped into the income statement in the form of income but because we entered it as of the prior year the income will roll out as of the end of December 31st 2023 to the equity section in an account that might be called retained earnings some of the other accounts if we put money into the checking account quickbooks just dumped it into something that they made up called like beginning balance equity or opening balance equity or something like that that's fine too so it's still in equity but it's just in some random account we want to clean out now or we saw that the accounts payable for example made a bill also went to the income statement in the form of an expense but it's going to roll into the equity section as well so let's check that out so now we're just going to clean up the equity section in essence so if I go down to let's open up our reports left hand side in the reports I'm going to open up our favorites right click it on the balance sheet open that in a new tab I'm going to open up the profit and loss right click on that open it in a new tab otherwise known as the income statement and I made the favorite trial balance over here so I can open it easily in my favorites right click open the trial balance if you don't have it there you can type in trial balance up top to find it let's go to the tab to the right close up the hand boogie let's bring it back to 2023 because that's when we entered the information as of so 01 01 2 3 tab 12 31 2 3 tab running it to refresh it going to the tab to the right same process closing the hand boogie that changes change 01 01 2 3 tab 12 31 2 3 tab run it so we can refresh it again then we'll tab to the right another time closing the hamburger we have the trial balance balance sheet on top of the income statement nice clean easy report to read 01 01 2 3 tab 12 31 2 3 tab running it to refreshing it so quick recap we go we go to the balance sheet for example what has happened we entered all of our beginning balances if we if we just review this quickly we entered the cash balance if I go into it then the system basically put in a deposit form or we actually entered it into the register so there's the deposit form the other side you can see went to opening balance equity so it just made up this account and put it to that other side if I go back we recall that the accounts receivable how did this happen if we go into the ar we'll recall that we created invoices how did we do that well we actually just put in our customers that owed us money and we put the beginning balance per customer and quick books made invoices the other side of the invoice is going to go to services which is an income account so it dumped it to the income statement that's okay because the income statement is going to close out to equity and then we went to the inventory the inventory if I look at that how did we do that well we just basically listed the inventory the guitars in our case that's what we sell over here when we input the data and quick books made a journal entry using the inventory starting value form and just dumped the other side into once again opening balance equity let's go back so then we did the the accumulated depreciation and the furniture and fixture we just made up those accounts and dumped the other side using a journal entry this time because that's the default form when there is no other form and the other side just went into the it doesn't show the other side but it went into the beginning balance equity again or opening balance equity closing that out that's same thing happened for the furniture equipment and the depreciation accounts payable what happened there we just entered the vendors that we owe money to quick books entered a bill when we put the balance of the money that we owed them and they dumped the other side into the other miscellaneous expense because it's a bill and this expense is typically the other side of a bill form closing that out let's exit and then we have the visa the other side of that went to opening balance equity we've got the loan the other side of that went to opening balance equity so you could see all of these accounts that we entered the other side washed out into opening balance equity in some way shape or form now those two items that went into income are making up this 5500 we could see those on the income statement giving us the detail about that form here's the income statement there's the services that's created from the invoices that we built when we put in the beginning balances for the accounts receivable and then we have the miscellaneous expenses which are the result of the bill created when we put the beginning balance in for accounts payable so we don't really want things to happen to the income statement but the fact that it's in the prior period means it doesn't really matter because that 5500 will zero out when we refresh in 2024 so if I look at my balance sheet it looks like our plan had worked if we look at the total equity it adds up to 77896 over here 77896 so that would be that you can use the same method no matter what type of entity you have sole proprietorship partnership corporation and then once everything is in equity in some way shape or form we make the adjustments to coincide with the type of entity that we are in which we will do now we're looking at a sole proprietorship now so in a sole proprietorship I should really only have at this point one equity account that's just going to be the owner's equity account now I could have other equity accounts that would also be tracking things like draws and possibly investments from the owner but usually those things in a normal accounting like textbook world they close out to the one equity section so that's so we should just have one account tracking all of the equity because we only have one owner if it was a partnership that's usually the most difficult system because you could do the same starting point get down to equity equity representing what is owed to the owner if they were thought of as one owner even though it's a partnership and then you have to break out the number of equity accounts which we might call capital accounts per partner which there could be many partners right if you have like 10 partners then that becomes quite a tedious task even with two partners it's not the easiest thing to do and then each of those capital accounts might have different revenue sharing according to the partnership agreement and you could have then to track draws and investments per partner so all you so the same process though we would take this number and just break it out to the partners and then if it were a corporation it's actually easier than a partnership usually because although you have multiple owners we broken them out into equal chunks kind of like having dollars to exchange as opposed to people bartering with cows and eggs and stuff or something like that right because now you have equal units and we on the bookkeeping side don't have to track what the value is per owner but rather just what the total value is and then the fact that we have equal units being distributed whoever owns more shares then has obviously a bigger ownership therefore we would break the equity out into the retained earnings because that's the name of the account that's usually used for a corporation and then if there was corporate investments instead of investments we call those the capital are or the the common shares typically and then the draws are dividends in the in the corporation terminology in essence that you know there's some differences in how you know the regulations on how who gets a dividend and so on but that's the general idea so so note that this net income the fact that QuickBooks puts this in here kind of causes a problem if we're like a partnership for example because you might want to distribute that net income with a journal entry to the partner capital accounts and this isn't an account so it's not like I can decrease decrease this account and apply it to the capital accounts so that's just something that you kind of have to deal with with QuickBooks that it that it does that because let me just show you what happens if I go into the next day up as we saw in a prior presentation if I go to 010124 to 1231 what happened kpasso 010124 123124 and run it now that net income has gone to zero and it's in retained earnings if I go to the to the profit and loss that 5500 is going to reset to zero 010124 123124 boom it resets there's nothing in it and then if I go to my my trial balance you can see what we have here is all the balance sheet accounts and then all of the liability accounts and then down here you've got the the equity accounts no retained earnings because there's no accumulation of revenue thus far the way we have it and then we just have these two accounts down below which represent the net income that's why we're still in balance if I go one day up here 010124 123124 then it's going to roll that net income the two income and expense accounts into the 5500 retained earnings okay so that's great now the only thing is if I go back to the balance sheet here I'd like to I want to get rid of the opening balance equity account and I'm just going to put it all into the retained earnings account because I'm a sole proprietorship and the opening balance is kind of an ugly account you don't really want to have an opening balance equity account because it doesn't look professional it's just an account that is used by QuickBooks to automatically put stuff to generally when you start the business so that you know that QuickBooks forced that to happen instead of dumping it into the retained earnings easiest way to do that you could do that with a journal entry but it's probably easy to use the register to do that so let's go and find that if I go to the tab to the left and I go down to the transactions tab chart of accounts all balance sheet accounts have a register kind of like the checking account is probably what you most imagine a register for income statement accounts do not because they're temporary accounts so if I find that equity account let's choose I could use either one by the way I could go into the opening balance equity register or I could go to the other balance sheet account of retained earnings why would I choose one versus the other well in this case the opening balance equity account is going to have the number that I want to go down to zero so that's probably the easiest place to go so if I go into opening balance equity use the register I can see what's in there and I can see that I need it to be zero so I can I can easily see my journal entry that's why I'm choosing it if I select the drop down I want a journal entry transaction and I'm going to say this is as of 123123 the same dates that we've been using for all of our adjustments beginning balance adjustment I'll just abbreviate and so it has this in it right now so I'm going to decrease it by that amount seven two three six three nine six is that right seven two three nine six I didn't dislexify it and then we're going to put the other side into retained earnings now QuickBooks might give us a warning because you don't usually post to retained earnings so but we're going to say that's okay because these are the beginning balance adjustment it didn't give us a warning all right so QuickBooks is okay with that back down to zero that's what we want let's check it out let's go back to my register this way let's go to the balance sheet scrolling up run it so now we had all this stuff that went into opening balance equity if I go into opening balance equity and I'm going to go back a year to 2023 so I could see the detail so all this stuff went into it and then we just took it right back out with this journal entry so we took it out and then we put it into retained earnings let's go back and uh what what are you talking about just exit QuickBooks now it's in retained earnings that's fine except that I'd like to use the name uh owner's equity so I'll use this I'm not sure if this should be like an I always whether where the apostrophe should go and what not but I'm going to call it owner's equity or you could call it a capital account but owner's equity for a sole proprietor so I'm going to go in here I'm just going to change the name now you can't this is a special account you can't delete it because this is the account you'll note that this is the one balance sheet account that doesn't have a register that's because this account is the account that QuickBooks is using as its closing account meaning the income statement is automatically rolling into this account on a yearly basis not on a monthly basis it doesn't do it on a monthly basis automatically because it breaks it out into net income it's its own thing it rolls it in here on a yearly basis okay so I can change the name though so I can edit it and I want to change the name and that's also important if you have a partnership or something like that and you're trying to make multiple capital accounts note it's still going to rule into one of the accounts you might make this still call it like retained earnings and then allocate it out of retained earnings into your capital accounts the retained earnings is where the the income statement will close out into all right okay so let's call it let's just call it uh what about owner's equity I think there should be a calm an apostrophe somewhere I'm just going to call it that though so I'm not a spelling expert hopefully that doesn't bother anyone too much I'm going to run it and then so now we have it uh called owner's equity down here so there it's owner's equity so there we have it so so obviously you would want to spell it correctly at everything uh if you're external reporting that's why we didn't want the opening balance equity because it looks ugly because it just doesn't look like a proper external reporting account right so if you have something in opening balance equity it kind of looks like you didn't really clean it up it might not be wrong but it's going to leave a bad taste in people's mouth because they're going to think ah maybe they don't know what they're doing right so so I think it's best to move it out of there and I think it's best if you're uh a partnership to call it a capital account or something other than retained earnings because if I see retained earnings I don't know if it's just me but I feel like it should be a corporation if I see retained earnings that's what's an indication that it's a it's a corporation name right I mean so in any case there we go so now now obviously still if I go back to the prior period 010123 to 123123 then it's still going to be in this net income now it's still in the 5500 is a net income and then it's rolling out to what was the retained earnings which is now the opening which is now the owner's equity so if I bring it up one 010124 123124 boom bam and there it is so if I go to my trial balance now I think everything is the way it should be let's run it we're looking at 2024 now if I go side by side we do the head to head with the trial with the trial balance over here and uh I've got boxing terms in my head I've been watching the old youtube things on the real deal holy field for some reason the the youtube things have been showing me that it's been anyway so we got the we got the checking account we got the accounts receivable we got the inventory we've got the accumulated depreciation we've got furniture and equipment and the accounts payable and then the visa the loan payable and then the 77 97896 in the the owner's equity looks very it looks perfecto just like moondo would do it so I think we're ready to roll into the next year but we still need to look at one more foundational item setting up the payroll which isn't our main focus payroll here we have a whole another course or section on that but that's another thing that you'd need to set up as like a foundational item before you get into your normal cycles here if you're processing payroll of course within your quick book system you could process it outside you might have a third party vendor you might not have any payroll but we'll look at that next time