This movie describes what a start date is. It also describes a trial balance report and how accounts and their balances appear in one. You’ll also see where to find account balances for a mid-year start date in a trial balance report and profit and loss report. The movie also describes how to modify an end-of-year trial balance report to obtain an after-closing trial balance.
- [Voiceover] The account balances you have to enter when you set up a company in QuickBooks depend on the start date you choose. The reports you need from your previous system also depend on the start date. First, let's go over some terminology. What's a start date? It isn't a field you fill in in QuickBooks. It's simply the earliest date for your financial records in your QuickBooks company file. A trial balance report shows the accounts in your chart of accounts with their balances as of the report date.
The trial balance report here is simplified with a few examples of each type of account. As you can see, asset values show up in the debit column. On the other hand, liabilities and equity show up in the credit column. Income accounts show up in the credit column while your expense accounts show up in the debit column. The most important thing is the total debits and credits at the bottom of the report have to be equal.
That's why it's called a trial balance report. Let's talk about what you do if you're going to start in the middle of the year. Let's say that you're going to choose a start date the last day of March, March 31st. You need a couple of reports for this. The first report you need is an accrual basis trial balance report, like the one shown here, as of your start date, March 31st. What is accrual basis? Well, that means that you show income when you create invoices, not when customers pay you.
And you show expenses when you record your bills, not when you pay them. The reason that we want to use an accrual basis trial balance report is so that we can see accounts like accounts receivable and accounts payable. We also need a cash basis profit and loss report for our income and expense accounts like the one shown here. With cash basis, you only show your income when you receive it from your customers.
And you only show expenses when you pay your bills. And because we're recording opening balances, that's what we want in our report. As you'll see during the rest of this course, you'll get all these balances into QuickBooks one way or the other. Now let's take a look at what we do with an end of year start date. Let's say that the start date is the last day of the previous year, like December 31st for the calendar year. I have a spreadsheet for this.
So here I have an end of year trial balance report. The good news with an end of year start date is that you set up account balances only for your balance sheet accounts. Things like bank accounts, assets, liabilities, and equity, the ones that I've highlighted here. So you can get all of these values from your trial balance report. But what about the income and expenses? We have to get rid of that somehow. The process is called closing the year's profit to retained earnings.
Depending on the tax form you use and the type of business you have, the equity account you close profit to goes by different names such as member's equity for partnerships. But here's how you close your profit to that equity account. The first thing we have to do is add up the expenses for the year. I'm going to do that in cell F22. I'm going to type an equals sign. The formula that I want is the sum formula. I type in an opening parenthesis and then I drag over all of the expense accounts.
When I type the closing parenthesis and press Enter, I get the total expenses for the year. Now I'm going to add up the income. And I'll do that in cell G22. It's the same thing. Type an equals sign. Type the sum formula, an opening parenthesis, and drag over, in this case, just two income accounts. I type the closing parenthesis and press Enter, and I have my income for the year. What I'm really after is the profit which is nothing more than income minus expenses.
So let's put that in H22. I type the equals sign, click the cell for total income, type the minus sign, and click the cell for total expenses. And when I press Enter, viola, the profit for the year. What I'm going to do with the profit is add it to the retained earnings. And I'll do this with a formula as well. I'm going to put in an equals sign in front of the current retained earnings and then I'll add a plus sign after it and type in the profit for the year which is $45,600.
When I press Enter, now I have my new value for retained earnings. But if you look at the total debits and credits, those don't balance anymore. No worries. We still haven't cleared out the income and expenses. To do that, I'm going to drag over the cells for income and expenses and then right-click and choose Clear Contents. When I do that, the totals at the bottom change but they go back to equaling one another which is really the important part.
Now, this trial balance report is known as an after closing trial balance report. For an end of year start date, you would add these values to QuickBooks which you'll see shortly. And that's how you find the values for most of your account balances.
- Converting existing data into a QuickBooks format
- Creating a company file from scratch
- Adding accounts and subaccounts
- Setting up customers, vendors, products, and services
- Opening balance information
- Recording account opening balances
- Recording open transactions
- Adjusting sales tax balance and inventory quantity
- Setting up closing data
- Adding users