Balance Sheet Accounting

Balance sheet accounting What is balacesheet? ASSETS are what the business has or owns. Current Assets - Those amounts that will be converted to cash within the next 12 months. QuickBooks uses the following asset account types: • Bank -Cash is money the business has on hand and in the bank • Accounts Receivable is the amount of money customers owe the business for goods or services. • Current Assets ○ Inventory is the cost of goods a business buys to resell. ○ Other Current Assets would include : Prepaid Expenses is a category of accounts that summarize things that the business pays for in advance, to use in the near future. They are broken down into individual accounts such as: prepaid Insurance. • Fixed Assets -Land, Buildings, and Equipment are purchased to operate the business. They are expected to last more than one year. Over the life of the asset, the cost to purchase is deducted as an expense called depreciation. The portion of the fixed assets that have been expensed in prior periods is called accumulated depreciation. The difference between the cost of the fixed assets and the accumulated depreciation is called book value. Fair market value (what you can sell the asset for is not reported on your books)

Talk to your accountant about what to classify as a fixed asset. A stapler or hammer, cost $12 will last 15 years but the cost is immaterial and should be expensed. We suggest to our clients using a $500 materiality guideline. The cost of the asset is its purchase price including delivery costs and installation costs. • Other Assets include Loans Receivable from officers of the corporation, lease deposits on rented property , and any other asset that does not fit into the above categories. LIABILITIES are what the business owes. QuickBooks uses the following liability account types • Accounts Payable is what is unpaid to vendors for purchased goods or services sold on open account. • Current Liabilities represent what can be paid in full within a 12 month period. Payroll Tax Liability Sales Tax Liability Credit Card Balances due Customer Deposits for prepayments of services or goods Accrued Expenses Payable is a category of accounts that summarize things the business has used but has not yet been billed for by the suppliers. Typical would be Salaries Payable for amounts unpaid for the last few days of the year, Interest Payable, and workers comp insurance • Current portion of Long Term Debt - an amount that represents all the principal payments of all company notes payable that will be paid in the next 12 months. Leave this account empty and let your accountant worry about it! • Long Term Liabilities represent the portion of the debt that will be paid off beyond the current portion (next 12

months) Since this is too cumbersome to handle on a month to month basis within QuickBooks. Simply set up the following accounts as Long Term Liabilities and let your accountant reclassify the amount that would be deemed current at year end. ○ Notes Payable are liabilities for which the business has issued (signed) a promissory note to pay the lender what they borrowed, plus interest. etc., that has accumulated on the note but has not been paid). ○ Officer loans payable for amounts loaned the business by the officer. Do not forget to pay interest on this debt at least quarterly. EQUITY, is what the business owner had originally invested in the company (Capital) and additional contributions of personal funds into the company (Additional Paid in Capital) and what the owner has kept in the company from the prior profits of the business (retained Earnings) and what the owner has withdrawn from the company: Dividends (C Corporations) Distributions (S Corporations) Draw (Partnerships and sole proprietorships) Click here for a sample account listing for a balance sheet Income Statement (Profit and Loss) accounts: REVENUE or INCOME or SALES - different names for the same thing is what a business is paid for the work it does. COST OF GOODS SOLD are the directly related to what is being sold. These expenses would not exist without a goods or

service being provided. Typical expenses would include Labor, Material, Small Tools, Subcontractors, Supplies EXPENSES are the overhead costs of doing business. They include selling expenses and administrative expenses

Open QuickBooks From the Banking Menu Make journal Entry If you are not sure what the account type is for a specific account, from the list menu, select chart of accounts and the account type is described in the second column. Account Type Increase Decrease Assets Debit Credit Expenses

Debit

Credit

Liabilities

Credit

Debit

Capital

Credit

Debit

Revenues

Credit

Debit

Journal entries with Accounts Receivable or Accounts Payable must include a customer or vendor name. If you are trying to

reallocate amounts between customers or between vendors, you will be required to use 2 journal entries to make the adjustment. Use an account called "transfer" (type= other asset) to balance each of the 2 journal entries. Transfer account should have a balance of zero when you have finished the 2 transactions. When you have completed the journal entry, run a report to see if you have achieved the desired result. Which report will depend upon the account balance you are correcting. If you don't know which report, try running a general ledger for the current period. General ledgers can be found under the reports for Accountant and Taxes. A bookkeeping course to gain insight to financial records and sharpen your grasp of business results. QuickBooks users, this course will help you to understand what is happening behind the scenes with the transactions you enter. This course in accounting will help you comprehend QuickBooks reports, provide you with basic troubleshooting skills, identify errors and make adjustments that make sense. . Accounting for Non-Accountants is an online course that requires no textbook or live instructor. It is a self-paced tutorial that can be taken conveniently in your own home or office. You will learn double-entry accounting. Learn how debits and credits work. Acquiring this skill is the key that unlocks the mystery of accounting.. US$99.00 entitles you to a one-year subscription to the course.

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