 QuickBooks Online Balance Sheet Report Overview Get ready to start moving on up with QuickBooks Online. We're going to 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 and 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. And then we're going to pick the United States version and verify that we're not a robot. Zooming in a bit by holding down control up on the scroll wheel currently at 125% on the zoom and noting 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 to get a look at them both going to then open up some tabs or duplicate tabs to put reports in as we do every time right click in the tab up top to duplicate right click in the duplicated tab to duplicate going back to the tab to the left and the reports on the left opening up the balance sheet report as that's thinking tab to the right then back down to the tab to the left for the reports and the P and L is what we want to hear the profit and loss close the hamburger the hamburger the hamburger otherwise known as and range change we're going to be going from 01 1 2 2 tab 12 31 to 2 tab and we want to run it because we want to refresh it and then we're going to tab to the left and close up the ham buggy and range and a change in We're going to go from a 1-0-1-2-2 tab, 12-31-2-2 tab and run it to refresh it. That's the set of process that we do every time. Now we're going to be focused this time on the balance sheet specifically, noting that these are our major two financial statement reports and all other reports relate to them. These are the things that we are constructing when we do the data input. This is part of the major job of the accounting department of the bookkeeping, facilitating the data input with the use of these forms to make the financial transactions to construct the balance sheet and the income statement, which we need for small businesses, at least for taxes, if not for external reporting and internal usage as well for future decision and planning and budgeting. So it's useful then to see how these are being constructed. What's the building blocks of the balance sheet and what are the components of it? So to do this, we're also going to compare if I go back to the tab to the left to the chart of accounts, which is down here in our accounting. And then we're going to go into, I'm just going to say see the chart of accounts, there's our chart of accounts and close this up. Now, as we looked at the chart of accounts, we kind of did some of this comparison, but it's useful to now look at it from the balance sheet side as well. So if I go back to the balance sheet, let's start out. I'm going to hold the control and scroll up a bit. We're at 175. I'm going to collapse everything from the inside out. So all the triangles, I'm going to collapse the triangles and then collapse the triangle and then collapse the triangle and then collapse the current assets and then collapse the trucks and then collapse the fixed assets and then collapse the total assets. And it will open this up one at a time. Like we're having one of those toys that have a little thing inside of it and it's always the same thing inside. And then we get, we'll open it that way. That wasn't a very good explanation, but you know what I'm talking about. You know what I'm talking about. So then we're going to close the equity and there we have it. And then we could close liabilities and equity. So this is the most condensed format of the balance sheet, which of course is simply the accounting equation. Assets equal liabilities and equity. Now note, it's useful just to see here that assets represent what the company has. The reason the company has it, you can think of assets as in other words, investments because the reason they're in the business is because you're going to use them in the future to generate revenue. If they weren't being used or weren't planned to be used in the future to generate revenue, then we wouldn't be having them in the business account. We would be putting them to the owner in the form of a draw or dividend. So the owner can put it to work somehow possibly investing somewhere else and like stocks and bonds. So remember that one of the principal things you wanna keep in mind, even if this is a sole proprietorship is the business is separate from your personal books and that's gonna help you to kind of plan for the business in particular. Now note that you can use QuickBooks for your personal books as well. It's just that then the assets represent what you own and the goal is a little bit different because now the goal isn't revenue generation as it is with the business. The goal is to live well. So you still have assets, liabilities and equity or you call equity different something but you, and you can use QuickBooks but just note it's a little different because when you think of the business as being separate than the personal, the business has a specific goal, revenue generation, which makes it easier in some cases to think about how everything gets put together. Okay, so then the liabilities and equity represent who has claim to the assets. How are you financing the assets that you're gonna use to generate revenue in the future? Either you're got a loan, you owe third party people or you have accounts payable or whatever or it's financed through you, through equity. Equity representing your value in the business. Assets minus liabilities also equals equity. That's the amount that you could draw out theoretically if you wanted to within the business but doing so would be drawing out the assets which you might need of course some of those in order to generate revenue in the future. All right, so then as we go through here, notice that some of the terms we look at when we look at the balance sheet will be financial terms for external reporting purposes, standard financial terminology. Some of them will be specific to QuickBooks themselves and we'll try to make some distinctions between those terms. Also note that the balance sheet is as of a point in time, so meaning it's different than the income statement which has a time range. So if you were to say the financial statements for the year ended December 31st, then the balance sheet is still as of a point in time. If I change the date range up top and I make this from 11, like if I see my numbers down here and I change this to 11, 0122 to 1231, I didn't change the end date and therefore there's no change on the bottom line. I had, it undid the whole thing but there shouldn't be any change on the bottom line, 23, 436, 29. And if I change this back to January 010122 and run it, and we look down here, we've got 23, 436, 29. So I'm gonna go ahead and collapse all these again. Okay, I've collapsed them now. So that's important to note because the income statement is different. The income statement is gonna be your timing report and it's gonna show you how far you went in a current time range. So you can think of it how far you drove your car how many miles you drove your car in a month. If you wanna start over and see how many miles you drove, you gotta reset the odometer or set it. That's your beginning point, whatever it is and see how far you went from that point. That's how the income statement is. The balance sheet tells you where you stand after you drove the car to wherever you drove it. That's where you are at this point in time. Okay, so if I open up my assets then we've got the fixed assets and we've got the current assets. These are financial terms or at least the current assets is a standard financial category term representing that the assets that you own that you're gonna use fairly shortly typically like in a year in order to help you to generate revenue. So if I open up the current assets then we've got the bank accounts, accounts receivable, other current assets. Note that these are not standard like separate groups. We don't typically in financial reporting have another subcategory often times for cash. You could but you don't often because these are all just part of current assets. The reason we break out the bank accounts and the accounts receivable as we discussed if I jump back on over to the chart of accounts is because they have special characteristics in the chart of accounts. So on the balance sheet, these, the little carrots for the bank accounts and the accounts receivable and other current assets are driven by the account types. That's how it's being built. So if I go back on over here, the bank accounts remember is not exactly what you would expect in a financial reporting financial statement. You would expect cash and cash equivalents. So you have a slight difference in the reporting because from a bookkeeping standpoint we wanna know the checking accounts because they have a special need and that they could be connected to the banks for example. And then you've got another subcategory which you might not always have in normal reporting. Accounts receivable, same thing. You've got a subcategory in financial reporting. You might just call it a component of current assets. Now it's got its own little breakout and another subtotal which is quite redundant if you only have one account in there although you could have another one like allowance for doubtful accounts. But that's why that's broken out here. Accounts receivable is an account that's gonna be going up with invoices. It's only gonna be there if you have an accrual kind of component. So notice the checking accounts of course will be there whether you're on a cash basis or not. The accounts receivables are only gonna be there if you are using a accrual basis. And as we go through this it might be useful just to note that the checking account if you go into it, then it's gonna have way more data than any other account. Meaning that the types of transactions and the quantity of them will be much more variant and lengthier than other accounts. If I go back to my report and I go into the accounts receivable you can see that this account only goes up with invoices and then it goes down when we pay when the invoices are paid by customers. So we should start to get a feel for each of these accounts and which forms are gonna increase and decrease them. And that'll give us a way better understanding of what's going on. All right, so then obviously it expanded everything. Again, every time I go into an account so I'm gonna collapse everything. Now the next one we're on is other current assets. So these are current assets that don't have a special need. So that's why they're here in their own group. All of these for financial reporting would just be current assets but now these don't have a special need so they put them down here. You've got the inventory assets. These are gonna go up when you buy the inventory down when you make a sale of the inventory. And it would only be there of course if you're tracking inventory it is an accrual account because inventory if you're tracking it on the balance sheet means that you're doing an accrual thing. You're putting it on the balance sheet. You're not expensing it when you pay for it but rather when you consume it to generate revenue. So these two accounts are in essence accrual accounts. You've got undeposited funds which is basically a cash account you would think for normal reporting purposes it would be up here in the cash and cash equivalence. But because this isn't cash and cash equivalence it's a bank account that usually has the type of accounts that connect to the bank statement. They don't put it up here. They put it down here which is a little kind of annoying but it should be a clearing account that closes out to zero so it shouldn't have much in it at any given time. So it shouldn't be too bad. It has a special need because this is the account that is gonna be helping you out to make a deposit into the checking account. So if I went into my deposit form over here these items here are tying out to the undeposited funds. So that's why it has its own kind of it has a kind of a special characteristic even though it doesn't have its own category. Back to the balance sheet and once again it expanded everything so I'll unexpand them. No it didn't expand everything. I'm just down here on the fixed assets. Now fixed assets could be called property plants and equipment often times I think would be more common in financial reporting you might think of them as depreciable assets. If you go into here you've got your truck. Now truck isn't normally like what you might call your fixed assets and you wanna be careful with the fixed assets because often times you're not gonna you're gonna have to depreciate them. It's an accrual account but it's an accrual account meaning if you're on a cash based system you wouldn't have fixed assets. You wouldn't have depreciable assets but even if you're on a cash basis you still do have depreciable assets from a practical sense because even if you're just doing your taxes you're reporting for taxes you're gonna have to have you're gonna have to deviate from a cash based system for fixed assets and depreciate at least on a tax based system. So you can't get away from it even if you're a small business generally. And so you're gonna have to track these fixed assets. Now you typically are gonna have to do that at least on a tax based system and often times small businesses will use tax software to do that. So I would strongly advise then you discuss with your tax accountant how you're gonna be dealing with the fixed assets and if they provide the depreciation schedules you wanna line up your fixed assets to line up to the depreciation schedules that they can give you oftentimes tax software being able to give you depreciation schedules on both a tax basis and a book basis if you want that. So we'll talk more about that later but that's gonna be the fixed assets. Now note it's important to break out the fixed assets from the current assets because fixed assets are kind of like the kind of things that you're investing in oftentimes to generate revenue. Now if you're in a small business and you just do gig work or something then you might not have a lot of fixed assets but you're often in a business that also has a lot of competition in it. If you're in a kind of business where you have to buy equipment then the whole goal is well I've gotta generate capital so that I can money so that I can put that money into fixed assets like form equipment or something like that so that I can then make money with the fixed assets. So that's the whole process but you gotta be careful because if you have all of your money in the fixed assets you don't have enough money to finance your future upcoming payments, your current liabilities that are coming due. You wanna be liquid enough to meet the future needs while still putting in a lot of your money into the fixed assets if that's how you're generating money because that's how you're generating money. All right so then that's gonna give us our total fixed assets here and then we've got our total assets then so that gives us our total assets that's what we own. Clearly the things that we own are not all in dollars so we have 23, 436, 29 dollars worth of stuff we have to measure in dollars. So and that's again important to note because you can't have all your money in the fixed assets because it's not liquid. Although you have assets that can cover a problem in the future it's not easy to access them that's the point. All right so then you got your liabilities and equity. So liabilities represent third party that you owe money to and once again we've got current versus long term. Current liabilities are kind of arbitrarily defined as they're due within one year but it's important to have that breakout because these are the things that are gonna be coming due soon and that's why you wanna compare these to your current assets because the current assets hopefully will be converted into cash soon meaning or possibly even your quick assets or whatever your accounts receivable and your cash. That's what you're gonna have in order to pay the current liabilities. That's why we often have a comparison between the current assets and the current liabilities. Now within current assets you've got these different breakouts of accounts payable, credit cards and other current liabilities. Now the reason in financial reporting you wouldn't typically have that they would just be current liabilities but in QuickBooks accounts payable like accounts receivable has a special need. It's basically got its own account type as we can see over here in the GL. So if I scroll down to accounts payable here it's got its own account type and that's why it's got its own like triangle. Even though there's only one account in it it looks funny, it looks quite redundant, takes up a lot of space that's kind of needlessly done because it's only one account but it's done so because every account type has its own account. It's special has its own account because we need to track who owes us the money which is gonna be by vendor. Now notice accounts payable is an accrual account as well. You wouldn't have accounts payable unless you were on an accrual basis for your outflows, your expenses. If you're just paying your bills when they become due and you're not entering the bill but you're paying them off with an expense form, you're paying your bills with an expense or check form, electronic transfer, then you're not gonna have an accounts payable. It's only when you enter a bill into the system, a bill form that you'll have an increase to the accounts payable. The accounts payable goes up with a bill form and it goes down when you pay the bill. So then we've got the credit cards. Now the credit cards are broken out into their own account because they are kind of like a checking account. So meaning you could pay all of your expenses in essence out of instead of electronic transfers from the bank, you could then pay them with a credit card and then just pay off the credit card monthly or something like that. And that means that if you were to do that you would have a whole lot of transactions within the credit card which would be similar to the banking transactions, right? Because at least on the decreasing side of things, not on the deposit side of things. So it has a special account because you can connect it to the bank in a similar way as, or not to the bank, but to the financial institution which might also be your bank in a similar way as the checking accounts. That's why it's got its own breakout here because it's got a special need within QuickBooks which you wouldn't see in normal financial reporting. And then every other current liability account that doesn't have that special need is down here including here we've got the sales tax payable which are gonna be set up by QuickBooks when you set up your sales tax, when you turn on your sales tax and then you've got a loan payable which might be there when you take out say a loan from the bank and you might pay them off in installments and so on. So the loan would go up when you take out the loan and down when you make your installment payments. And then the sales tax accounts are gonna go up whenever you make a sale like an invoice with an invoice or sales receipt because you're charging the customer for their tax, sales tax and they're gonna go down when you pay the tax with a special payment widget right to the government. It'll be like a payment form but it'll have its own number or its own type because you're using the QuickBooks system to make the payment. And then you got long-term liabilities usually you don't have a lot of these possibly could depend on the type of business but the type of thing you'll have down here is your loans typically. So if you have a loan that is extending over a year then it's not current but it's long-term. And so you've got a situation with these loans too that's kind of an issue in that if you take out a business loan the loan you might be paying back the loan in monthly installments over five years. What if that's the case? Well then you have a current portion of the loan that you're gonna pay back in one year and you've got a long-term portion you're gonna pay back after one year. Okay, so then I could just break them out between the two. But the problem is that it's not easy to do that because every time I make a payment then I'm gonna have to make the adjustment between the short-term and the long-term every time I make a payment. That becomes tedious. So oftentimes when we're in practice you might have like one loan account maybe like you put the whole loan in the current loan and then periodically at the end of the month we'll make an adjusting entry to break out the current portion and the long-term portion for reporting purposes needs. Now it's important for reporting purposes needs that you know the difference between the current and long-term portion because again you wanna make sure that you're liquid. You wanna make sure that you have current liabilities that are somewhat in the range that you can pay them off with your current or liquid assets. So otherwise you're in danger of going bankrupt. So one way to avoid going bankrupt is to extend the loans to have less in the current portion and more in the long-term portion so that you can hopefully have more time to make money. Have your master plan play itself out so that you can become a billionaire before you run out of cash and they won't let you get. So there's also some issues with the loans that we'll talk about in terms of reporting. If you have multiple loans like some construction companies do for example as you're financing equipment and whatnot then the question is for reporting purposes you really only want one loan payable for external reporting but for internal reporting you probably want a different loan payable for each loan so that you can tie out the loan to the amortization table. And then you wanna have periodic adjustments at the end of the year with multiple long-term loans so you can break them out between short-term and long-term and be able to verify that they are correct. So we might use like sub-accounts in order to do that. We'll talk more about that when we get into the bookkeeping reporting side of things but there's some differences between external reporting and internal reporting. And a lot of times you might do some stuff within QuickBooks to make it easier to do the bookkeeping while still being able to make adjustments for external reporting as needed. So possibly with end-to-period adjusting entries and with sub-accounts and things like that. So we'll talk more about that as we get into the practice problems. You also have an issue that you have to break out interest and principal when you make the loan payments and the interest and the principal will differ with every loan payment. So that also causes an issue when you're trying to automate and make the system as easy as possible. We'll talk about all those issues as we go through our practice problem area. And then that gives us our liabilities and then you've got your equity. Now the equity as one lump sum, you can think of, notice they gave us a nice generic term of equity because it can be thought of as in essence the same no matter what type of entity you are. In other words, sole proprietorship, partnership, corporation, S corp, LLC, whatever. But then within equity, we'll have to break it out. So equity you can think of as total assets, 23436.29 minus the liabilities, meaning the claims to those assets from third party that's gonna be 2500, that gives us our equity. Hold on a second, something went wrong. That wasn't total liabilities. Let's say plus 2500 minus, I should have picked up this number, 31131.33, that gives us our equity. So we're negative equity in this instance. So that's not really good. But that's gonna be the idea. That would be like the book value of the company when you're trying to value the company, the first thing you're probably gonna look at is, well, okay, what's your equity? What's your assets? What's minus your liabilities? Now within equity, accounts will differ depending on the type of company or business you are. The opening balance equity, this is kind of like the default account that QuickBooks will put in place if you do a transaction where QuickBooks doesn't know where the other side would go. Meaning oftentimes when you put the beginning balances in, we'll see this when we start a new company file, it'll put the other side to opening balance equity. It's actually a really good system, but opening balance equity is not a professional account. You don't wanna keep it in opening balance equity because when you report to someone else and you have a balance in opening balance equity, it looks unprofessional. So you wanna move it out of there typically. And then you've got retained earnings. Now retained earnings is a name that is usually applicable to a corporation, corporations we would call it retained earnings. So there's gonna be differences in the names. Now first of all, just note that this retained earnings, whatever you call it, is gonna be for QuickBooks an important account because QuickBooks will close out your income statement into retained earnings or whatever you wanna call this account if you wanna change the name every year, every fiscal year that you have on it. So notice that this number right here, 164246 represents what's on the profit and loss. That's how the income statement is related to the balance sheet. And then if I was to change the date up top, it'll move it. So if I change the date to 2023, 2023 and I run it, QuickBooks is trying to help us out by closing it by showing us what the income is and then closing it out to retained earnings. Now that's kind of neat that it does that. It's great that it does a closing process, but the fact that it includes income down here can also cause some issues. And let's just discuss that real quick here. If I go back up top and I bring it back to 2022, and 2022, let's say, 123122 and run it to refresh it. So let's say that this was a sole proprietorship, for example, if it was a sole proprietorship, you might call this owner's equity or maybe your capital account. And then you also might have another account for draws. That's the amount of money that you take out of the business as you earn revenue in the business. If you're not putting it back into the business as property planting equipment up top, if you're not buying property planting equipment and it's not giving you any added value, you're just holding onto it in the checking account, then typically you wanna give it to yourself in the form of draws. So the draws would be the money coming out. And then you also might be putting more money in which you might just put directly into the retained earnings account where you might have another account called owner investments or something like that. That's the money that you're taking out of your personal account to put into the business, most likely to buy property plants and equipment or something like that to generate revenue in the future. So if it was a corporation, then you call this retained earnings. That's the earnings that have accumulated over time that you haven't yet given back out to the owners. The money that you give to the owners is usually then called dividends. It's different than a draw because if you have multiple shareholders, you can't just have one shareholder take out more money than another shareholder. The company itself has to give out equal money to everybody. That's why we call it a dividend. And therefore you have to have everybody kind of agree, the company, the board of directors and the management have to agree on the amount of money that's gonna be distributed in dividends. So corporations are kind of, they're still fairly easy to think about how to report. That's the point of a corporation because you have multiple owners, but you're breaking all the ownership into equal units of shares. And therefore that actually makes the equity section a little bit easier, although you can get complex stuff like treasuries and all this weird stuff going on. But that's actually should make it a little bit easier for reporting for multiple owners than say a partnership. And then in a corporation, you might have the capital stock represents the money that was invested. So instead of owner investment in a sole proprietorship, you putting money in, the money that is invested by the owners is because the corporation issued stocks for money. So the owners put money in when they bought the stocks from the company, not on the secondary market. These are stocks that were issued from the company. And then if it was a partnership, which is actually kind of the most complex component oftentimes, then this retained earnings account would be a partner, an equity partner account. And then you've got multiple partners, which you might call capital accounts partner, and that would be breaking out total equity. But now instead of breaking it out by retained earnings and investments, which you do for a corporation or just one capital accounts, you have to have multiple capital accounts because in a partnership, the partners can have different capital accounts depending on the partnership agreement. They can draw different amounts out of the partner. They can have different amounts of income allocated to their accounts. So these would be kind of like the payable accounts to the partners. You can kind of think of it as, and that is where it becomes a problem to have this retained earnings oftentimes down here, or I'm sorry, the net income, because oftentimes the net income needs to roll into retained earnings or a partner capital account so that you can then allocate it to the various partners. In accordance with the partnership agreement. So that becomes a bit tedious. Partnerships actually become more tedious in some ways than a corporation, just in terms of allocating the equity out. So you might have to change the name, but equity in total is pretty straightforward. And then you've got your total liabilities and equity, which represents the same, is the same number as your total assets. They're just two sides of the coin. Assets is what the company has. Liabilities and equity represent who has claimed to it, either third parties, the bank, or yourself, the owner, or yourselves, the owners, in the case of a partnership corporation. Okay, so that's the balance sheet. So in a future presentation, we'll kind of go into formatting the balance sheet, and then we'll talk about the income statement and how it's related to the balance sheet. Just note, if I go to the first tab, I don't think we did anything special with the cog and changing the business view. We've just been looking at the chart of accounts is here. So the chart of accounts is under bookkeeping and then chart of accounts. And then your reports are under business overview and then your reports. I think that's the only areas we went. It's just a different layout for the business view.