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Back to the tab to the middle, accounting drop down, we want to pick up that balance sheet report and then we'll tab to the right, accounting drop down this time the income statement otherwise known as the profit and loss. Changing the date range on the P&L I'm going to bring it back to 2022 because that's the time frame that our data input has been input in going to the end of December 2022. Let's update there. Now in prior presentations we've primarily been using the bank feeds to populate our report. So if I go to the first tab we've been going into the accounting drop down into the bank accounts and we've uploaded information from the checking accounts. We imagine we pulled in information from the checking account from the bank as well as a credit card and the PayPal accounts. For all of these I'm going to go into the checking account. We have basically been constructing our books for the most part directly from the bank feeds and just a quick recap noting that I'm going to go to the flu chart over here. This is a QuickBooks desktop flow chart but we're just looking at the flow of the forms that you can only do that if you're in certain industries. So we talked about on the revenue cycle for example if you're going to wait till the money hits the bank before recording revenue then you're in an industry where you can do that possibly gig work or something like that is an industry where you can kind of construct your books from the bank feeds often times. However sometimes you have to step away from that if you're in a cash register situation for example you might have to first do the data input on your side use the bank feeds to match and if you have an accrual component or inventory which often forces you into some cruel components then you're going to have to see how the bank feeds are going to fit into your accounting system. So for the most part over here we've basically imagined that we were in an industry where we can put the financial statements together from the bank feeds and so what we did is we said when we added the bank feed information there was nothing in the account transactions we added the bank side of things and then in the reconcile tab we basically had the banking information on the left and we created our financial transactions on the right from that. So now that we've done that let's go into our reports looking at the major financial reports balance sheet and the income statement and then a little bit on the sub reports the other reports that usually give more information about one or multiple line items of these major financial statement reports that have been created. Now remember that the use of these financial statement reports if you're in the United States in your small business you're going to need the financial statement reports at the least for tax preparation generally and if you're a Schedule C business a small sole proprietorship you basically need the income statement because that's what the Schedule C form is going to be. So note you might be saying well why do I need to do the accounting software because I'm getting this balance sheet I don't even need the balance sheet to do my taxes or something but remember you can't really get the income statement to be completely accurate unless I mean you could but you have a lot more internal control and assurance if you do the full double entry accounting system which means you want the balance sheet as well and if you're doing internal reporting for your business then the full financial statements are going to be important for your own decision making processes and then you also might have external reporting that you might have to do as well possibly in order to get a loan or for reporting to owners of the company or something like that. So those are the uses of the financial statements the major two financial statements being the balance sheet and the income statement now note that the balance sheet is the double entry accounting system where we have the assets the liabilities and the equity the total assets equaling the total liabilities and equity. Let's just go through some of these line by line and see how they were constructed with the bank feeds. So we have the checking account if I go into the checking account the checking account is going to have more types of transactions in it than any other kind of account because the checking account being special being unique due to the fact that it is the lifeblood of the company in other words the cash if I look at the flow chart over here is in each of these cycles each of these cycles is going to have cash in the cycle somewhere not every transaction will have cash in it but cash will be in more transactions than any other type of account and cash will generally be involved at some point in each of these cycles. So cash is going to be obviously very important and the fact that cash is involved in each of the cycles in some way shape or form is the reason that we can basically construct our financial statements from the bank feeds in some instances. So we've got most of the cash accounts can give us more kind of transactions than any other account if we build it if we built we build it if we built our financial statements from the bank feeds directly you would expect the cash accounts to have received money forms and spend money forms those are the two types of transactions that come through the bank feeds and then you could also have transfers as you transfer between like PayPal in your account or your checking account or your credit card accounts and here and so those are going to be that's the the checking account the other side of the checking account is generally going to go to expenses and income for the most part right and that's constructing the income statement as we go alright so if I go back to our cash account let's take a look at the rest of some of the other accounts here we've got the accounts receivable now note that the accounts receivable is an accrual account the only reason we have accounts receivable here is because we deviated in some ways from a cash basis to an accrual basis if you are constructing your books completely from the bank feeds you will have no accounts receivable so that means that if you have to invoice people and track whether they paid you or not you are doing an accrual thing and you're going to be generating an accounts receivable account which will help you to track that payment and you're going to have to figure out how the bank feeds are going to fit into your process which we talked about a little bit in prior presentations and then we've got the investment account so this is we're imagining investments in stocks and bonds we talked about how this one can be a little bit tricky when you're tracking your your information with just the bank feeds because remember that the stocks and bonds could go up and down as you as you get cash flow meaning income from revenue and interest and when you purchase and sell the stocks and bonds but most of the time people also want to track their stocks and bonds on a market value basis given the fact that they're publicly traded and you know what the market value is and therefore you have to to do that you'll have to do periodic adjustments to it also just remember that investments like stocks and bonds should not generally be if you're in a sole proprietorship business for example on your business side of things unless it's a short-term investment that you're going to use for whatever your business is or your business is the business of investing in stocks and bonds because what it should have then instead is is we separate the personal and the business this business for example is not in the business of stock and bond investment but in gig work or whatever so I wouldn't want my stocks and bonds here instead when I get my money I want to transfer it through a draw to myself and then invest personally in stocks and bonds giving me that separation between what my business objective is here specifically in my personal objective you could do that by the way with one zero account trying to break out your income statement between business and professional if you wanted to do that sometimes it's not recommended because it could be easier to mingle things up that way but if you have a small schedule see business that might work now inventory is generated here noting that inventory is another one of those things that will often muddy up being able to construct our financial statements simply from the bank feeds because when we have inventory we typically have to do and a cruel type of thing so we talked about different ways that we might deal with inventory you might deal with it by a per by a periodic inventory system tracking the units of inventory outside of the zero system or you might track it perpetually in the system and think about how your bank feeds will fit into that process primary got investment this is another investment account that we had root this is another investment account so then we have the fixed assets the fixed assets are another kind of a little bit tricky with the bank feeds so we just have to make sure that when we're purchasing fixed assets that we are that we are going to be able to pick up the fact that the fixed assets are going to be a higher dollar amount items usually so that's one way we can kind of see whether or not we're paying for something that's going to be expense or whether we have to put it on the books is a fixed asset the fixed assets that can be a little bit tricky because they're not day to day transactions we don't buy equipment all the time we don't buy buildings all the time and so because that they don't happen all the time when they do come up they might they're a little bit unusual of a transaction that we might have to kind of think about a little bit more closely there are also transactions we often finance meaning we take a loan out for them possibly and their transactions where we have to once again deviate from the cashed based method to an accrual based method because in the United States at least at least you have to do that for taxes even if you're doing this just for taxes you're still going to have to put it on the books as an asset the other thing that gets gets complicated with the fixed assets is the tracking of the depreciation schedules which in the United States you might be able to do with the help and support of tax software or tax professional the tax software usually being able to calculate both book depreciation and tax depreciation and therefore can act it's kind of like your sub ledger then the liability side we have the credit cards remembering that the credit card is something that can be connected to the bank fees as well so financial institution so just just when you think about the credit cards how they act basically they act in the same exact way as the checking account you buy stuff with the credit card but when you buy stuff with the credit card instead of the cash the good thing the asset going down the liability the bad thing is going up you owe money for the things that you're purchasing and then of course when you pay off the credit card you pay then you're going to decrease the liability so the easy thing about the credit so the credit card often is more complicated to think about bank feeds for most people because clearly we're used to thinking about your cash going down rather than a liability going up but once you wrap your mind around that the credit card should be easier than the cash account often times because we can do the credit cards almost all the time from the bank feed transactions once the bank feeds are set up because because all of transactions on the credit card will be electronic transactions we're not going to have any checks or anything like that and therefore we can basically purchase stuff and then wait till it clears the bank from the credit card statement and pull it in with the with the bank feeds note that the credit card also had those inter company transactions when we pay off the credit card from the checking account so we had to deal with that issue and then we've got the the loan payable so if we deal with any loans then you're going to have to that causes problems with the bank feeds as we talked about because one when you put the loan on the book she might have financed something so so you have to make sure that you put the loan on the books properly and then to when you pay off the loan it gets a little bit messy because you have to break out between interest and principle and we talked about a couple of different ways that you might go about doing that and then we've got the equity section down here so the equity section is often the most complicated section for many people to grasp in part because the equity section will be named different names depending on what industry you're in so just remember that total equity as a whole is basically the same from a double entry accounting system no matter the type of business it kind of represents the book value of the business the amount of the assets that are allocated to the owner so if you think about this you can do it two ways you can say that we have the assets equal the assets equal the liabilities plus the equity right so that means that the assets are what the company has liabilities are third party claims to those assets and then the equity represents the owner's claim to those assets you can also do it this way you can reformulate that equation by saying assets minus liabilities equals equity right and that means it's like a book value of the company so that means if you liquidated the company sold all your assets paid off your liabilities in theory you would be left with as the owner 89,120 and 34 cents however it's not exact because all of the stuff you have up top isn't cash so you'd have to sell everything and get the exact amount for these in order to liquidate the company which isn't a sure thing you know to happen but that's the that's the general idea now when you go into the different concepts of equity equity represents ownership if it's a sole proprietorship then you only have one owner so it's gets kind of easy so then you just got the retained earnings might better be called owner's equity and then as the company generates revenue the owner's equity is going to be increasing right because we're generating revenue increasing our assets and then equity you could pull those assets out from the equity side and then when you do pull the equity out we call that draws from a sole proprietorship so that's us taking money out of the business and then when you put money into the business which usually only happens at the beginning of the business or when you're expanding the business we can call that an owner investment and then we also have this current year earnings which represents the bottom line of the income statement that that is going to roll into retained earnings in other words if I changed the date range one day up this number would roll into retained earnings now if you were a partnership then you'd have to do this whole thing for each partner which gets messy in accordance to the partnership agreement right so now you're going to have a you're now you'd have a different capital account for each partner different draws for each partner and possibly a different owner investment account for each partner so that you'll now have to track equity as though the the business is a separate entity and you're trying to track how much of the value that's allocated to the owners is allocated to each owner according to the to the to the partnership agreement that gets difficult and in zero as well as any other QuickBooks online any accounting software too because that means that you got to break out the current year earnings to the to the multiple partnership accounts and it kind of messes things up that they use this current year earnings account because uh because you want to break this out into because this isn't an actual account this is zero trying to show hey look the income statement is part of the balance sheet but it gets a little messy when you're trying to allocate that out between different uh different partners if you're a corporation then then now you have the owners are represented by equal shares of stock right that was the beauty of the corporation and why corporations are actually easier in a lot of ways to do the books for than a partnership because in a corporation you're just going to call it retained earnings that's the earnings that are allocated to the owner of the corporation the divvied the who who has claimed to those earnings well it's divvied up evenly in shares and we have more people if you have to own more shares to have more ownership right so it's it's equal units it's like having dollars instead of saying that i own 30 percent of a farm you know you know if you have you have tangible you have things that you can have in units uh standard units so so that means that you have retained earnings the owner investments are the issuance the the initial issuance of the of the stocks that's when money came into the business from the stocks being sold from the business not on the stock exchange but from the business itself and then the draws are dividends draws are kind of a sticker the messy situation in a corporation because in a corporation you can't just have one person say i want to draw some money out uh you have to have dividends which are going to be equally distributed to all the shares because you have to have all the shares being equal so you can't have like one partner drawing money out the way you might be able to have an a partnership you have to basically say if there's going to be a dividend everyone has to agree to it and you have to think about so that's what the messy side of the corporation is so pros and cons there all right so then if we go to the income statement the income statement fits into the balance sheet remember the balance sheet is the double entry accounting system how does the income statement fit into it because there's the net income the net income is part of the equity section we break it out on the balance sheet as a timing statement so this is the primary tool that you'll need to like report taxes for example if you're in the united states because the united states has an income tax which taxes based on your performance when you earn the income so that's going to of course have the income up top which we have generated primarily through uh deposits that have come in through the bank feed increase in the checking account the other side go into these income accounts and then the cost of goods sold would only be there if you are selling inventory which we already talked about causes problems inventory does forcing us to deviate from like a cash based system oftentimes and then we've got all the expenses which primarily again we have created through the decreases in the checking account the other side go into our various expenses and we basically constructed our expense categories as we've had those as we've seen those expenses come through we had other income and expenses down below and then of course the bottom line is net income 58 5 5 0 17 which ties out to what's on the balance sheet here let's take a look at just some of the other reports just quickly I'm going to duplicate this and just take a quick look at some of the other reports that are being generated as we as we do our bank feeds accounting drop down reports so we have our favorites up top all the reports financial analysis these are some snap these are kind of some fancy reports the snapshot the short-term cash flow I'll let you the manage the budget summary so I'll let you take a look on those on your on your own but let's go down here to starting with the financial reports we looked at the balance sheet we've got depreciation schedules which would be dependent upon whether or not you're going to be calculating depreciation in zero or not if you're in the united states like I say you're going to have to do depreciation for taxes on a tax basis so you're going to have to put it into the tax software anyways that's why a lot of times in the united states you might just use the tax software as your subsidiary ledger for both tax depreciation and book depreciation if you don't have that obligation or you'd like to track your own depreciation in the software as well then then you can track then you can use that method disposal schedule fixed asset reconciliation the income statement the management report here's another statement of cash flow which is the direct method so if I open this up in a new tab let's do it right click open it up here's the other primary kind of financial statement report let's bring this from january uh to december of 2022 december of 2022 uh that's november where's december december okay so so notice that the cash flow statement is trying to do is basically doing a performance report like the income statement but on a cash flow basis now note that if you're creating your financial statements directly from the bank feeds you're fairly close to a cash-based system already although we talked about the fact that you still might have to deviate from a cash-based system for things like uh well accounts receivable is a and it's an accrual thing or the fixed assets or a primary one so the whole idea of this accrual concept is the idea that if you have an income statement and you didn't do accrual things such as you paid $100,000 for a building in february well when you try to compare january's performance on an income statement to february's performance on an income statement if you had a hundred thousand expense in february for building expense then it would throw off your comparison because clearly you're not going to use that building in february you're really going to use it for 30 years into the future so you can see how distorted your income statement would get from a performance standpoint so the idea would be you can't do that because i can't compare my income statement reports so i'm going to put that on the balance sheet and then allocate it as we use the building however if i do that then from a cash flow perspective i don't really have a cash flow perspective anymore and cash flow is important because cash flows the lifeblood of the business so to get the best of both worlds then we can run our reports on an accrual based method and then have our have our statement of cash flows which will give us that cash flow method as well that's the general idea of it so the operating section is basically kind of like the income statement on a cash basis the investment activities you can think of more broadly as just like investments in stocks and bonds like investments in assets fixed assets typically is what the investment activities are are involved with typically financing activities financing the business financing the business happens through the owner financing it and through the loans so equity section and loans and then the total cash flow the end of the total cash flow should tie out to the balance sheet so cash and cash equivalents at the beginning cash and cash equivalents at the end 57 790 60 and that should be the the checking account so i think it might be the 64 07 5.98 minus the the credit card 900 minus the 900.95 statement of cash flows no that's not it well i see we have a PayPal account in here that's a liability let's try it again so it's the 64 07 5.98 minus this overdrawn PayPal account minus the 6285.38 57790 so 57790 okay that's how it ties in all right let's see what other reports we have we can talk about the statement of cash flows all day so statement of owner's equity could break out more detail on the balance sheet if you need more detail there which you might you might depending on how complex of owner's equity you have then you've got your payables and receivables now remember that most of these reports are going to give you more information about one or multiple line items on the balance sheet or the income statement so it can be a little bit overwhelming to look at these reports but just remember that they're just usually going to give you just more information about the primary reports also just note that the balance sheet of the income statement also through the edit layout tab gives you a lot of capacity to do comparative reports comparing like one period to another period subtracting the two periods you can compare quarter to quarter current year to the prior year and that kind of stuff so you've got the aged payables these will give you more information about the about the liability of accounts payable showing who you owe the money to and then you've got the aged receivables which show you who owes you money and how overdue the receivables are income and expense by by contact these reports give you more information about your profit and loss and this is why in particular with the income side of things we don't usually break out the income by who we got the money from we did this time because we had gig work and it's a little bit different but usually you don't want to have all your customers broken out on the income statement one reason is because it'll be too long another reason is because you can get that information with other reports like for example possibly this income and expense report uh and similar on the expense side that's also why we'll we'll keep it at that so payable invoice detail that gives more information about the accounts receivable because uh or the accounts payable the payable invoice summary the receivable invoice detail so these are given more information about the accounts receivable and accounts payable accounts you would only have if you're deviating from a cashed based system because of the industry that you're in the reconciliation reports primarily the primary one being the bank reconciliation that we take a look at when we constructed the bank reconciliation noting that these reports are a little bit different than the other reports in that they're internal control type of reports and zero the way zero puts them in here we're kind of building these even as we do the data input as well it's built a little bit differently than other software like QuickBooks online but even still this is it's a bit different of a report because you're really uh showing the reconciliation tying out to an external uh place which is the bank now again in our case we were constructing our books from the bank but in any case I won't get into that in detail 1099 reports are are reporting reports in the united states that you would need to to uh track uh for reporting purposes on who you paid money to to like contractors not employees but contractors not generally corporations but sole proprietor contractors and small businesses foreign currency gains and losses if applicable general ledger detail this report gives you kind of like the the transaction detail report it's the gl uh by the activity reports general ledger uh exceptions general ledger summary the journal report this gives you a report on like debits and credits to record the double entry accounting transactions could be a good report to kind of study on if you want to shore up your understanding of debits and credit sales tax reports can be useful of course when you're trying to track your sales tax noting that sales tax is another one of those areas that kind of throw a wrench in or complicate the process of trying to build your financial statements directly from the bank feeds tax reconciliation our trial balance great report having basically the balance sheet on top of the income statement that we've talked about uh and the end of many of our presentations as we've constructed this transaction uh account transactions you can look at your transaction report duplicate statement line inventory item details which of course are going to be important if you're tracking inventory in the system inventory being one of those items that could complicate creating your books directly from the bank feeds and the sales by item reports so there's a general outline of what we can construct or have constructed from primarily constructing our books using the bank feeds