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.

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