 QuickBooks Online 2022 Balance Sheet Report Overview. Get ready because it's go time with QuickBooks Online 2022. Online in our browser, typing in QuickBooks Online Test Drive, going into the Test Drive and then selecting the United States version and verifying that we're not a robot. I also clicked on some pictures of a taxi cab. Now we're in the sample company, Craig's Design and Landscaping, holding Control, scrolling up just a bit to get to that one, two, five percent. We're also gonna have the free 30-day trial version open just so we could take a look at the business view as opposed to the accounting view. If you don't have access to this at this time, that's okay, we'll be using it more in the second half of the course. Back to Craig's Design and Landscaping Services, we wanna take a look at one of those favorite financial statements, that being the Balance Sheet, but I'd like to open three reports, Balance Sheet, Income Statement and the Trial Balance. To do so, let's go to the tab up top and right click on it. We're gonna duplicate the tab, go back to the tab to the left, right click, duplicate it again, back to the tab to the left again, right click on it and duplicate it again. We're gonna be looking at the Balance Sheet, the Income Statement and then I'm also gonna be opening up the Trial Balance, which in essence is the Balance Sheet on top of the Income Statement. Let's go down to the reports on the left-hand side, reports on the left-hand side, opening up one of our major reports, that being the Balance Sheet Report. So we'll select that item. Now this is one of our major two financial statement reports, gonna change the date range up top, 0101, 010121 to 123121 and run it, close the hamburger, go to the tab to the right, gonna go down to the reports again. We're gonna be opening up this time, the P&L profit loss, which also can be called the Income Statement, the other major financial statement report, range change from 010121 to 123121, run that report, close up the hamburger, go to the tab to the right and then go down to the reports again, this time opening up the Trial Balance by typing in up top Trial Balance. The Trial Balance is going to be basically the Balance Sheet on top of the Income Statement, range change up top once again from 010121 to 122121, I got a tab first, 123121, run it and then close up the hamburger. In the first tab, I'm gonna be opening up the chart of accounts. So I'm gonna scroll down to the accounting area and we're gonna be taking a look at the chart of accounts that we have seen in a prior presentation. Now remember, when you look at the financial statements, you wanna think about, when you look at the reports in total, we wanna think about Balance Sheet and then Income Statement as our major two reports which also could be thought of as basically the Trial Balance in essence having the Balance Sheet accounts without the subtotals on top of the Income Statement accounts without the subtotals. Then those two statements are basically being constructed from the underlying chart of accounts here which is the basis on which we lie our financial transactions, the financial transactions being everything that we do with this new button, typically these being the basic financial statement transactions which are recording items to our major financial statements. Every other statement pretty much is gonna be a supporting statement of some line item or multiple line items on the Balance Sheet and the Income Statement. So let's look at the Balance Sheet then, it's gonna be a highly important report and we can think about it as a point in time so you can see the date is gonna be a little bit different on the Balance Sheet than the Income Statement because it's as of a point in time. This is showing us where we stand. This is here, now. This is the here, now report as of this point. The Income Statement, if we go over to the Profit and Loss or Income Statement, I will use those terms interchangeably, then you'll notice that you have a range of time because this is showing performance over a range of time. So the Balance Sheet is showing us where we are. The Income Statement is giving us some idea of how we got to the current point in time. We'll talk about the Income Statement more at a later point. So the Balance Sheet represents then the assets, liabilities and equity to think about those. Let's try to close everything up. I'm gonna close all these little carrots up from the inside out, or at least I'm gonna try to. So I'm gonna close this carrot. I'm gonna close this carrot. I'm gonna close this carrot, you can call it a triangle. And then I'm gonna close all of the assets. And then I'm gonna close the liabilities from the inside out. Close them up from the inside out. We're gonna close them up, close them up. Okay, so there we go, then I didn't do the equity. The equity down here, closing up all the equity and then closing that up. So what do we have there? That's called our accounting equation, assets equal liabilities plus equity, assets representing what the company has. And the reason the company has them as assets is to help generate revenue into the future. That's why the company has the assets. So if you're talking about a normal company, like one that does landscaping, then the reason they're holding onto the assets in the company and not distributing them to the owner is because those assets are going to be expected to generate revenue in the future. And usually those assets are not just gonna be cash sitting on the books or even short-term investments unless they're a financial type of company because they're gonna be investing the assets into things like property, plant, equipment and inventory, those things being invested into because it's hoped that they will help generate revenue into the future. So the assets are what the company has, the liability you could think of as the flip side of the coin, they're basically the same coin, one side, other side, the liabilities and equity represent who has claim to those assets. The liabilities, third parties, people like the bank, people like the creditors, the credit card companies and so on are payables that we owe and then equity, which represents the owner. The owner will be different depending on the type of entity we are, but we know what the owner is, it's the owners of the company. So for sole proprietorship, it would be one person, therefore the entire equity would be pretty straightforward as one account, you could think of it, which would be the equity in total. But if it's a partnership, now you've got the added problem of equity be broken up into two partners because if you think about it, this is assets minus liabilities equals equity, equity is the net worth in the company, at least on a book value, which now needs to be broken up into two or more partners in a partnership. So tracking the equity accounts in a partnership is something that you gotta be careful of, whereas if you're sole proprietorship, then it's fairly straightforward. So if you're a sole proprietorship and you're thinking about, for example, do I want to hire someone as an equity partner in the firm, or do I want to just hire contractors, which I pay either a contractor or an employee, then you've got the pros and cons and the complication of splitting the equity, which can be kind of, you gotta make sure that you have what you want to do down, that everyone's on the same page and everything, versus dealing with payroll possibly and that kind of stuff. So in any case, and then if you go to a corporation, now you have all the equity broken out into units, standardized units of equity, which then can be owned, those units being called shares. So now the equity's broken out into common stock and the common stock is being distributed, not in terms of a partnership agreement, but rather in terms of the owners, how many shares are owned and the shares are kind of standardized units. But you could think about equity as a total as the owners claim to the assets as opposed to third party claims, which would be the liabilities. And then you gotta dig deeper in terms of who is equity, who are the owners and how is that gonna be split up on that section. So if we were to open this up then, let's open them up one by one, the assets, the things that the company has, and again, why does the company have them? Not so they can have a big thing, a big safe with money in it so someone like Uncle Scrooge can dive into a pile of money or something like that, no, because that would mean that you're not using the money to generate revenue. The reason you have the assets in the company is to do in this case landscaping work or to plan for landscaping work in the future so that that money can be used to create something to generate revenue in the future. Otherwise you would give it to the owner who might then have a big thing of money that they'd swim in or something. But in any case, we're gonna go to the bank accounts up top. So these are gonna be the bank type of accounts where we have the checking accounts and the savings accounts. Now note, let's point out some differences in terms of financial terminology and in terms of QuickBooks kind of terminology. If you talk about assets in general, that's a normal balance sheet financial statement terminology. Current assets is a normal balance sheet terminology. That means their assets, they're gonna be more liquid type of assets rather than long-term assets or property, plant and equipment. And then the bank accounts, however, is not a normal financial statement terminology. Usually the financial statement terminology would just call it cash or cash in cash equivalence. So why do we have these check it or these bank account terms? Because for QuickBooks, when you look at the chart of accounts, if I jump back over to the chart of accounts, they need these account type of the bank accounts because from a software standpoint, they have a special need. That special need, for example, is to connect to financial institutions, possibly having bank feeds related to them. And so that means you're gonna have this special dropdown and also note that you got this neat dropdown. Those dropdowns will be there because it's a special sub-account type. So we're gonna have a dropdown for every financial kind of category, assets, and then current assets, and we're gonna have a dropdown for every account type, which could be more of a software thing like bank accounts as opposed to just cash and cash equivalence. Then we have the sub-account of the total bank accounts. So every time we have a different account type, they're gonna have a sub-account, which again is not necessarily what you would expect to see on financial reporting. You would generally just have cash and cash equivalence on financial reporting grouped into one account, basically on a balance sheet. Then you've got the accounts receivable, which is a cruel account by definition. So that means that you would only be using it if you basically invoice people. In other words, you do work before you get paid and you have to track the outstanding accounts receivable. Once again, it would only be under current assets, but it has its own dropdown here. The reason being is because it's got its own special account. If I jump back over to the ledger here, we got our own account type. So it's not just an current asset account, which would be a financial account category, but rather it is in its own accounts receivable, which seems quite redundant, given the fact that now you have this dropdown when most companies only have one accounts receivable, although you might have an allowance account that you could be dealing with as well. So the reason it is doing that is because they have a special need for the accounts receivable that need being the sub-ledgers, which is gonna break this information down not only by general ledger, in other words, transaction report by date, but also by who owes you the money. So the sub-account reports are gonna be breaking out the accounts receivable by customer in some way, shape, or form. So again, it looks quite redundant, having three lines here, which on a normal balance sheet would be one line if it was just accounts receivable unless there was an allowance account. And then we've got everything else that is an other current asset or current assets that doesn't fall into a specialized category that has a special software need, and that's gonna be the inventory assets and the undeposited funds. Noting, undeposited funds is also an account you wouldn't expect to see on a balance sheet that was for external use because that undeposited funds would be included in up here, typically not under bank accounts, but in cash and cash equivalents. So notice if you were given this for external reporting usage, you might clean it up a little bit because these accounts are probably, they're basically more designed for the ease of bookkeeping usage and can be used for external reporting purposes, but not necessarily in the perfect formatting for external reporting purposes. Why is this account down here when it's basically a cash account? Because it basically represents money that you're holding onto, checks or cash, or something like credit card payments that have not gone to the bank yet because it's for accounting system needs, it doesn't act like a checking account. You're not gonna be connecting undeposited funds to a bank account and having bank feeds and whatnot. So it acts like from a software perspective, an other current asset type of activity. That could be a little tricky because when we look at say the statement of cash flows, we're gonna have to take this number into consideration when we think about that type of report in our total cash in general. So then we've got our fixed assets down here. Fixed assets could also be called, well, we got noticed that now we've got the total current assets and then the total current assets here right there. So that is a financial statement account subcategory that's normal. Then we've got the fixed assets, which could also be called property planting equipment, which you might see on financial statements or PPE and E. You could also hear them called depreciable assets. Typical categories under this area would include things like equipment, building, land, furniture, furniture and fixture. So if I opened this up, we've got the included truck, which is probably not the most, you know, it's kind of a, you know, not as broad a category, you probably call it automobiles or something like that. But in any case, we've got the truck here and we've got the original cost. Now this is a pretty simplified fixed asset category because you might have multiple different things in here. You might have, of course, multiple vehicles. You might have then multiple pieces of equipment that you had to capitalize. And the idea here being an accrual concept in that you have to put something on the books as an asset, even if you paid for cash, for example, for something like a building, if you paid $100,000 for a building, then you wouldn't expense it. Even if you paid cash for it, you'd have to deviate from a cash basis to an accrual basis, putting it on the books as a fixed asset and then depreciating it over the life of the fixed asset. And even if you're on a cash basis, some accrual concepts you can't get away from. You can't, because on the tax side of things, they're gonna force you to do that. So you won't be able to just expense the building unless at least the tax code will allow you to do it on a tax side if there's some special depreciation that you could use or whatever. But so that's one thing that you're gonna have to basically do a accrual kind of concept for. And that means every transaction that you have that's over a certain dollar amount, you're probably gonna wanna think, okay, is this gonna be supplies? Is it an expense? Or is it something that I have to capitalize, put it on the books as an asset and then depreciate it over time? So we'll talk more about that in future presentations. But then we've got the total assets and also just note that you'll have another account here called Accumulated Depreciation, typically, which will be the reduction in the depreciation. And we'll talk more about that when we get to the accounts for the adjusting entries. So let's close up, that's all the liabilities that we have here. So we got all the liabilities. Let's go into, I'm sorry, that's all the assets. Let's go into the liabilities and equities starting with the liabilities. This means outside people that we owe money to, broken out into two main categories, current liabilities and long-term liabilities. Those are both categories we would expect to see in normal financial statement reporting, current liabilities being those liabilities that are due within a year. It's a pretty arbitrary cutoff, but it's an important distinction because we wanna be able to compare the current liabilities to the assets that we have to pay them. So if we got a whole lot of liabilities that are becoming due within a year and we don't have enough current assets to pay them, then we may have a liquidity problem. We may not be able to be solvent. We might not be able to pay our debts. So if I go into the current liabilities, then we have the, let's close these up, we've got the accounts payable. The accounts payable, like the accounts receivable, in financial statement reporting, would just be another category, in this case, of current liabilities. The accounts receivable would just be a current asset. But for QuickBooks, this is a special account with special needs. So from a software perspective, we're not just gonna call it another current liability. If I go back into our chart of accounts, on the liability side of things, we're gonna call it a special account in and of its own type, which is gonna be accounts payable. So it's an account payable type of account. And that means it's got a dropdown and it's got a subtotal, which is quite redundant, given the fact that you only have one account, which normally would be under current liabilities because of that kind of special need. And what QuickBooks will do is force you every time you post something to the accounts payable, to also record something to the vendor so QuickBooks can create a sub ledger for you. And then we've got the credit cards. Now the credit cards, once again, under normal financial statement reporting, would probably be just called like credit card payable or something like that. But here we have their own category because there's special needs with regards to the credit card because you might link them to the financial institution for the bank feeds. And so if I go back on over here, we don't just call them other current liability types, they're special credit card type of accounts. And they can be linked to bank accounts, which we will do when we get to the bank feed. So again, we got this redundant kind of thing, credit cards and then the credit card statements and then the total credit cards. And then we've got other current liabilities, everything else that doesn't have a special need from a software perspective that is another current liability from a financial statement perspective is then put down here as an other current liability type of account. And then we got the long-term liabilities, which oftentimes is gonna be some type of loan. Loans kind of have their special needs too because you might have one loan that has a short-term portion and a long-term portion noting that current liabilities represent those that are due within the next year. Long-term liabilities are those that are due after that point. What if you have an installment loan that you pay monthly, but it's like 20 years out that you don't pay it off for? You've got a short-term and long-term portion. We'll have to deal with breaking that out. We'll talk about that in the adjusting entries section. So that gives us our total liabilities. And then we've got the equities section representing the owner's claims to the assets. And the major categories down here is gonna be the retained earnings and the net income. Now the retained earnings is a category that is usually only used for a corporation as corporations see corporation. But QuickBooks, when you just set up the company file, if you don't change the name of it, they're gonna use retained earnings. And that is what it sounds like. It's basically the earnings of the company that have been retained. In other words, you have not yet given them back out to the owner in the form of if it was a sole proprietorship, draws, or if a partnership draws, or if it was a corporation, dividends. So it's the earnings that have accumulated upwards which have not yet been distributed out. The net income is something that you would not expect to see on a balance sheet for external reporting use. What QuickBooks is trying to do is basically put that line item in the balance sheet so that you can see that the balance sheet is connected to the income statement. So they're kind of making an equity section in the balance sheet. It can be nice, but it can also be a problem because if it was a partnership, for example, that we're talking about, then I would have to allocate that net income to multiple capital accounts. And if I have this net income lying down here, it looks funny. But in any case, like for example, if I change the date up top and we change this to one date up, it's gonna change that. What's gonna happen is this net income is gonna roll into retained earnings because that's where it should be reported because the net income is part of the equity section in equity. So let's do that. If I go 010122 to 123122, for example, and run it, run it. I was running, Jenna, if I scroll down, then now it rolled it up into net income and then it put this up. This is what happened in the following year. So it rolled it up basically into net income. Now you also have this opening balance equity account. That account is like the QuickBooks way of saying, hey, look, we didn't know where to put this number and it usually is put in place when you first start the company file. So when you set up the company file, if you're setting up something from scratch and you're saying, hey, look, I know that I have some of these accounts up top. I've got something in the checking account. I'm just gonna add it to the checking accounts. I've got something in the savings account. I'm just gonna add it there. I don't know where to put the other side. I'm just gonna put it into opening balance. Then QuickBooks will dump the other side into this opening balance equity account, which is basically QuickBooks way of saying, hey, look, I need to reconcile. I don't know where to put the other side. I'm gonna put it into opening balance equity. So what we will do when we start a new company file, then what we'll do is we'll enter the beginning balances. We'll see how this opening balance equity works and then we'll do an adjustment, taking the money out of opening balance equity and putting it into the proper equity account like retained earnings possibly so that it looks a little bit more professional so we don't have this equity, this opening balance equity account, which basically, I mean, if you give someone a report that has something in opening balance equity, it makes you look like I would make someone suspicious that things aren't done up to par possibly because that's not, you know, that's kind of an account that's a plug account. So if I go back up top and I go back to the 010121 to 123121 and run it, I was running and scroll back down, then we can see that this 167646 is gonna be connected to the income statement. So if I go to the income statement, bottom line of the income statement is that one, if I get all the way to come scrolling slow, 167646, that number is tied into the balance sheet. So the income statement is related to the balance sheet. So in other words, if I think about this in terms of my assets, liabilities and equity, assets, liabilities and equity like this, then the income, the equity, you can also think about this accounting equation as assets minus liabilities equals equity, which would represent kind of like the book value of the company, meaning the amount of the company, the worth of the company that would be allocated to the owners and you think about that, that's kind of like the bottom line you can think about of the value of the company. And then the income statement tells us the story of how we got to that bottom line, meaning we're gonna take it a year back, we're gonna go a year back and see how far we got, meaning where were we in terms of our equity before the year and then here's our performance over the timeframe, how far we went, how far we drove the car and then how many miles we drove within a year and represents the net income climbing kind of upwards. That's kind of a metaphor that we'll use here. It's a little more complicated than that, but that's the general point. Balance sheet is where we are at. The equity section you can think of is like the bottom line of the balance sheet, assets minus liability, the worth of the company in essence on a book value and then the income statement is looking a year back to look at performance where were we a year ago, how did we get from that place to the current place? That's the income statement, which we'll look at next time. Also just note that if we go to the chart of accounts here, this chart of accounts, you can see, you can see we have a long chart of accounts and you can kind of determine which of these accounts are we actually using. All the accounts that are up top down to equity are balance sheet accounts and you can kind of determine all the ones that have the view registered down to equity and everything after that is income statement. You can kind of determine then which accounts are you using that have been used to populate the balance sheet up top and which accounts are on your chart of accounts that aren't being used, aren't being populated because there aren't any financial transactions that are being recorded to them. And it's easier to see that to some degree on the trial balance over here. On the trial balance, you got the same thing except we don't have any of the subtotals. So assets, assets, assets, assets, assets, liabilities, liabilities, liabilities, liabilities, equity, and then equity and then down to the income statement, income statement down below. So that's the balance sheet on top of the income statement is basically the trial balance and it gets a little funny. You might have said, hey, where's the retained earnings or what's going on with that difference between, and that's because when we put the trial balance together, you're breaking out the equity section between the performance that happened in the year that net income is being broken out further into income and expenses. So we'll talk more about the income statement in a later presentation.