 QuickBooks Desktop 2023, sub-accounts, categories for fixed assets or property, plant, and equipment. Let's do it within to it's QuickBooks Desktop 2023. Here we are in QuickBooks Desktop. Get great guitar practice fire. We started up in a prior presentation going through the setup process we do every time. Maximize the home page to the gray area view, drop down, hide icon bar, open windows list checked off, open windows open. Reports, drop down, company and financial profit and loss changed. The range from 010123 to 123123. Customize it. Fonts and numbers changing 214. OK. Yes and OK. Reports, drop down again. Company and financial again. But this time the balance sheet. Customize it with the change in range in 010123 to 123123 and fonts to the numbers to change to 14. OK. Yes. OK. That's the setup process that we do every time. We're now focused in on the fixed assets or property, plant and equipment thinking about the best practices for the categorizations of the fixed assets. To do that, we first need to take a step back thinking about what the fixed assets, what property, plant and equipment are noting that on the balance sheet we have the property, plant and equipment. These are accrual accounts, meaning even if you're in a cash based system, you typically have to step away from it with regards to property, plant and equipment and do the accrual thing. So in other words, even if you paid $103,000 cash for furniture and equipment, you can't just expense it because you're going to have to put it on the books as an asset and then allocate it over the life of the asset. That is an accrual thing. Why do you need to do that? Well, you know, at least for taxes, if you're doing income taxes on it, even if you're on a cash basis for income taxes, they're still going to force you to put some stuff on the books on an accrual kind of component for property, plant and equipment. The justification being that it's such a large deviation. There's such a big timing difference that you have to do the accrual thing for it, which kind of makes sense because for example, if this was one purchase of property, plants and equipment and I paid cash for it and I just expensed it in month one on the profit and loss and I compared then my profit and loss for January to February, I would have a very skewed comparison. January would look very bad because of this big giant expense, which isn't really fair to January because really, I'm using that thing that I purchased, the equipment for like 10 years into the future. That's the idea of the process of allocating it. So that's what we have to do. We have to do this accrual thing. Whenever we do the accrual thing, it adds complexity to the system. So that's the one thing we got to take care of. Now, the next thing to note is that the sub ledger for property planting equipment, which would break out the property planting equipment by item, by thing that we purchased is not typically something that we will account for within QuickBooks. We could, we do have lists up top for a fixed asset item list, but this isn't really a comprehensive sub ledger that's going to be breaking out the accumulated depreciation per item because and the reason for that is we're usually going to use external software to do that. So for example, as a comparison, if you look at the accounts receivable and I double click on the accounts receivable, this is in essence a general ledger account related to it broken out by date, but that's not good enough. I also need a sub ledger broken out by customer and that's going to be the sub ledger reports in the customer center that break that out. QuickBooks forces us to have those things lined up, which is nice by forcing us to enter what has its pros and cons, but it's kind of nice because it forces the sub ledger to be in alignment with the fixed assets. We're not going to have the sub ledger in the system because one, it's quite complex to calculate. And two, we have to do it in the tax software anyways, meaning the tax software, we're going to have to give them our data so we can properly report the taxes. So if we're going to have a sub ledger in the tax software, we might as well use the tax software to calculate our depreciation. We might as well use that as our sub ledger instead of duplicating the process within QuickBooks as well. So that's one justification as to why you would do that. Now note that the tax software has tax depreciation, which kind of starts from the basis of normal accounting or a cruel accounting components, but then it deviates from that for whatever legislative purposes they want. So they want to stimulate the economy. They tap bonus depreciation 179. That makes no sense from an accounting basis, but that's what they do on the tax basis. So now you've got this depreciation schedule that is really weird. So you could use the tax depreciation schedules for your book depreciation if you're a small business and you don't want to go through the confusion of having two separate depreciation schedules, or most tax software also has the capacity to have book depreciation and tax depreciation. So you can say, Hey, look, you could do your crazy tax stuff, but I also want you to do a straight line book depreciation for me so that I can have my books on something that's not crazy tax depreciation. There's pros and cons to that. You want to discuss that with your accountant. The next thing we want to consider, well, if I'm going to use a sub ledger outside of QuickBooks for my depreciation, I would like to set up my accounts here to tie out to whatever is on the tax software. So whatever categorization is in the tax software, I would want to make my accounts line up to them so that my adjusting entries could be as easy as possible. So typically, if I look at tax software, it breaks it out into furniture and fixtures, typically the name and then machinery and equipment. I think it has an automobiles, typically and buildings, for example, and land or the typical categories. And because it's sub categories and all the items in those categories, those are the ones I would like to mirror on my side so that I can make my adjusting entries easy as possible. So notice here that I've got the breakout of like a sofa, chairs, recliners, I'm trying to give as much detail as possible to support what I actually purchased when I purchased these items in the furniture and equipment. That's important because ideally I would like my sub ledger, which would be in the tax software, to be detailed enough that I can actually identify the piece of equipment because if I sell or dispose of the piece of equipment, I need to be able to identify on the tax software what it is so I can write it off on the tax software on the sub ledger. So we have to provide to our tax preparer the detail of the stuff we're purchasing, serial numbers and what not would be most beneficial. And we want to make sure that the sub ledger on the tax software is broken out by item, not by group purchases. So that when I sell stuff, I can then take I can know which singular thing I bought even I sold even if I bought it in a group. Okay, so here we've got furniture and equipment. What I'd like to do is break that out to match it to furniture and fixture and then have the equipment match out so it ties out to what I hear have here in my sub ledger. I also want to make an accumulated depreciation account tied to each category, because that's also what we have in our sub ledger. And notice that this sub ledger is a little wonky because I because I exported from a PDF to word and then to excel here. But the idea here is this is what we paid for it. This is the year. This is the method of depreciation. We're going to use a straight line. This is not tax depreciation, but it was created from tax software. And that and that's going to be our calculation. So let's go back on over and say, okay, well, then let's go to my list, drop down, and let's get into a technical component of it chart of accounts. And so if I have my my furniture and equipment, these are these accounts, I currently have one furniture and equipment and then accumulated depreciation. I could just put all my stuff into one account, right? That would be easy. And then just and then just combine this whole thing into one account. But typically I break it out per category. So I would like to see furniture and fixture and equipment, not everything in the one account. Alright, so then I'm going to say, okay, let's change this one. I'm going to change the name, right click. I'm going to edit this account. And I'm going to call this furniture and fixture. See, it just sounds cooler too, right? It's furniture and fixture, not furniture and equipment. That doesn't roll off the tongue. Hopefully I spelled that right. Is that how you spell fixture? I think so. We're going with it. So we'll save that. And then I'm going to make another one, which is going to be machinery and equipment, because that's the category that we have here, machinery and equipment. I'll just copy it this time. You can't misspell it if you copy and paste it, huh? So then we're going to go to the account new. We're going to say this is going to be a fixed asset type of account, right there. Bone continue. And this is going to be pasting machinery and equipment. So that looks good. And so I'm going to say, okay. So there we have that. And then I want to make an accounts accumulated depreciation for each of those accounts. So instead of having just one, I could keep it at just one, but I normally would have a separate one for each account so that I can see what I purchased the asset group for, then the accumulated depreciation, the reduction, and then the book value would be the difference between the two. So I'm going to, I'm going to right click on this one and edit this one. And I'm going to call it accumulated. Let's call it. I usually ACC, ACC D pre, which I don't really need because I'm going to make it a sub account, but I like to put it there furniture and fixture. And I'm going to make it a sub account of the furniture and equipment. So that'll mean it'll be like a drop down of the furniture and equipment. Now there's a couple of ways that you could do this. Like I could make a parent furniture and equipment account, and then I could have cost under it. And then I could have this one, but that'll be a little bit longer. Let me show you what I'm talking about. It'll be easier if I just say save it. And so now I've got furniture and fixtures, and I've got the sub account of it. What's that look like on the balance sheet? If I go to the balance sheet, I can say, okay, so here's the fixed asset, which has a carrot, because it's a whole separate class of categories. And then within it, I've got the furniture and fixture, which is a parent account. And then it has the accumulated depreciation, you know, underneath it. And so we have that little drop down item. Now the other way you could do that, instead of seeing it this way, I might make a parent account called furniture and fixtures. And then instead of calling this, I'll just call this underneath it cost and accumulated depreciation. And that way, so you'd have the two accounts underneath it, that would add another line. So I'm trying not to add another line. That's why I made this just the sub account of that so you can experiment with your with your categories. But I'm going to do the same thing over here. I'm going to make another one a sub account for machinery and equipment. I'm going to go to new. And let's make it a fixed asset account. It's still fixed asset, even though it's the contra account of accumulated depreciation. And then I'm going to call this ACC D pre machinery and equipment. I'm going to make that a sub account of the machinery and equipment. The fact that we make it a sub account also is nice because because since we don't have account numbers, it'll order it in the right fashion. It'll put this one under this one, even though alphabetically it would be in the reverse order. In other words, if I save and close this, I don't want the accumulated depreciation above the machinery and equipment, right? I want it to be subordinate. And if I have them in the same grouping, the a alphabetically will be higher. So if I don't have account numbers, this is another way that we can kind of format it to the format that we would like to see. So there's the there's the idea. So that should match out to what I have over here, which the furniture and fixtures and then all the stuff that is in that category, and then the machinery and equipment and all the stuff that is in that category. Now I'm going to imagine then that that 5000 that we purchased in the prior presentation, I want that to go into the machinery and equipment and everything else. We're going to keep up top in the furniture and the furniture and fixtures. So I could go into that transaction and recategorize the transaction to machinery and equipment, but instead I'm just going to do an journal entry to record this. I'm not going to adjust the last transaction. I'll do a journal entry. So there's no form for this because there's no form for me to do this adjustment. Therefore, I need to do a journal entry, which you can do in the company drop down, make journal entry, or I can go into the chart of account and use the registers, which is in essence the same thing, but in an attempt not to use debits and credits, right? With QuickBooks. So I'm going to go into machinery and equipment. This one needs to be increased by 5000. I'll do it on, I'll make the date on it. Let's keep it 227. That's fine. And I'll say this is going to be an increase in this one, an increase of 5000. And the other side is going to be going to furniture and fixture. So furniture and fixture should go down because I'm increasing this one. And then I'm going to say in the memo, adjust fixed assets to deprecategories, sub ledger categories, or something like that. And so there we have that. If I close that out. So now I've, I've adjusted this down to here. So if I see the balance sheet now, let's check it out on the balance sheet. We're going to say, okay, so now I've got my fixed assets. I've got furniture and fixtures here with, with the accumulated depreciation. And then I've got the machinery and equipment. So this is the sub account, right? I've got furniture and fixtures, which is the 98,000 minus the 7,500. It's still a little backwards the way it's formatted because of the numbers. So that didn't work out perfect, but 90,500. And then machinery and equipment has no sub account tied to it at this point, because it's not, there's no accumulated depreciation yet. We will record that at the end of the month. Now, if I double click on this, if I go into that transaction, where did I go here? And right here. So here's the journal entry. It was recorded with a journal entry, but if I double click on it, it takes me to the register, right? But then if I double click on, and I did it in 2022 again, let's change it to 2023. Man, you got to stop doing that. Okay. Yes. So let's close that back out. So there it is 2023 double click on it. And then if I double click on this, there's, there's the journal entry. So that looks good. So I'm going to close and I might want this memo on both sides. So I'll save it and close it. Boom. Boom. Boom. So, so that looks good. So if I, if I just tie this to my ledger, notice that this 98,000, if I double click on it, we had 75,000 from the prior period. If I was to try to work this with my tax software, that stuff will already be there from the prior period. That's everything from 2021. We're going to imagine, which was let's just cut out the zeros 15 plus 23 plus 12 plus five plus two plus three plus seven plus eight. And that's the 75,000, right? That was there before. It already has depreciation related to it. That's what this column is. I know it's a little wonky here, but that's what this column is, which adds up to the 75,000. So the two, one, four, three plus three, oh, one, two plus eight, five, seven plus three, five, seven plus one, one, nine plus one, seven, nine plus four, one, seven plus four, one, six, seven, thousand, five. That's the depreciation that was recorded 7,000 five. And then we had the purchase of the 7,500 in the current period. So in the current period, we purchased these items, which is 22,000 plus 3000 plus 2000 plus 4000 plus 5000 plus 2000 was the 23,000 total, which is going to be the seven and the five and the 16, which is actually, no, it's just the seven. It's just the seven and the 16 and the five we took out. And we said the 5000 is part of closing this back out the machinery, which is these down here. And the reason I just want to point this out is that notice that we might purchase lump sum transactions in and record it in our books as one lump sum. So when I purchased, when we purchased like this 16,000, that might be one couch, but it might be multiple things. And if it's multiple things, when I give it to my tax software provider, I want them to put it in the system as whatever multiple things there are and do their best to try to identify those things specifically because if I put multiple things on there at one lump sum of 16,000 with a generic name, it will not cause a problem now, but will cause a problem when I dispose or sell of those things because then I will, I will be trying to sell one thing that was a group of multiple things on the sub ledger. So that's the point of the sub ledger. You want to work with your tax software or your tax preparer or your CPA firm, try to get your stuff to line up in terms of the categories with them. We will record adjusting entries at the end of the period based on this discussed whether you want to do your stuff on a book basis or a tax basis, which would be the easiest and so on and why. And then see that when, when you're giving them the information that they should be putting the information on in detail to make the future easier when you dispose of the equipment, you want to, you want to basically verify that that is taking place because that'll make the whole process basically as easy as possible. Okay. We will return to this when we do the adjusting entry process and the adjusting process after this month of data input. So now let's just take a look at our, our trial balance and wrap this up for crying out loud trial balance. Let's customize this thing from 010123 to 0123123, font in numbering 16 and okay. Yes. And okay. So this is where we stand at this point in time. If something doesn't tie out, you can change your date range and see if it's a date issue. And then we'll go through the transaction detailed reports at the end of the month, hopefully further finding any problems or solving any problems by that time.