What is a Balance Sheet?

checklist-41335_960_720We’ve covered several commonly used accounting terms here on our blog, including cost of goods sold (COGS), fixed expenses and variable expenses. A term that we’ve yet to discuss, however, is balance sheet. So, what exactly is a balance sheet and how is it used in the world of accounting?

As explained on Wikipedia, a balance sheet is essentially an equation of a person or business’s assets plus liabilities and equity. All balance sheets — whether for personal or business use — must contain these three elements.

A balance sheet is a break down of a person or business’s assets, cash, equity and liabilities. There are two primary types of balance sheets: a personal balance sheet, which is intended for use by individuals, and a small business balance sheet, which is intended for use by SMBs. A personal balance sheet contains an itemized list of a person’s assets, including cash, checking accounts, savings accounts, stocks, bonds, real estate, etc., as well as liabilities like mortgage debt, credit card debt, loans, etc. It’s important to note that securities and real estate assets are included at their current fair market value in a personal balance sheet and not the historical cost.

Although similar in terms of function, a small business balance sheet contains a few nuances when compared to its personal balance sheet counterpart. A typical small business balance sheet contains an itemized list of assets in the form of accountants receivable, inventory, real estate, equipment and even patents, as well as liabilities like accounts payable, debt, loans and accrued expenses.

If you’re wondering how exactly to calculate your business’s equity, here’s a simple formula: take your total assets and divide that number by your total liabilities. This gives your business’s equity for use in a small business balance sheet or other bookkeeping documents.

You may also come across the term “Balance Sheet Substantiation” when performing accounting and bookkeeping work. Basically, Balance Sheet Substantiation is the process of confirming the balances in a business’s accounting record are properly reconciled with the totals listed in the balance and transaction records. It typically involves multiple steps, including reconciliation of the business’s account, as well as a review of the reconciliation documentation.

Hopefully, this will give you a better understanding of balance sheets and how they are used.

Have anything else that you would like to add? Let us know in the comments section below!

How to Create a Custom Report in Quickbooks

sale-685007_960_720One of the reasons why so many small business owners and professional accountants choose Quickbooks for their bookkeeping software is because of its versatility. It’s simple enough so that anyone can use it, regardless of experience level, yet it’s also loaded with features to customize the experience. Quickbooks even allows for the creation of custom reports — something that we’re going to discuss in greater detail today.

As you probably already know, Quickbooks comes loaded with several different report templates that display various information. But what if you want to change these reports and/or the way in which the information is displayed? Well, you can customize the default Quickbooks reports according to your own preference. It’s a relatively and straightforward process that should only take a couple of minutes.

To create a custom report in Quickbooks, fire up the software and navigate to the Reports page by selecting the Reports tab on the left-side navigation bar from the Home Screen. Next, go ahead and open the Profit and Loss report, followed by clicking the “Customize” button. Here you’ll see a plethora of different options to further customize the Profit and Loss report.

Now, if you are looking to create a custom Profit and Loss report that displays data by month, simply access the Rows/Columns settings and choose “Months” as the parameter in the Columns box. Next, access the Header/Footer and change title. This step is optional, although it’s recommended that you use a descriptive, unique title so you know that it’s a custom-made report. A good title, for instance, is “Monthly Profit and Loss,” as this describes what the report is.

When you are finished customizing the report, click “Save Customizations” at the top row to save the changes. You can then preview the report to see how it looks, and if necessary, make any additional changes. before using the report. The Profit and Loss report is just one of the many reports in Quickbooks that you can customize.

It’s recommended that you play around with these options to see what works best for your specific needs. There’s no single best way to create a custom report in Quickbooks, as each and every user has different needs. And besides, you don’t have save any of these changes. Just play around with the customization options so you get a better feel of the system and how it works.

Did this tutorial work for you? Let us know in the comments section below!

Fixed vs Variable Expenses: What’s the Difference?

dollar-1009324_960_720Whether you’re a small business owner or professional accountant, you’re bound to come across some rather confusing terms regarding bookkeeping. While most people are familiar with “expenses,” there are several associated terms that can be somewhat confusing, such as “fixed expenses” and “variable expenses.” So, what exactly do these terms mean?

A fixed expense lives up to its namesake in the sense that it’s static and does not change. If you are billed a flat $100 each month for an enterprise-based telephone service, for instance, this is considered a fixed expense, simply because it’s the same amount every month.

Another example of a fixed expense for businesses is rent or lease. Unless you work out of your home, you probably pay a flat amount every month to rent, lease or otherwise use a building. Of course, these are just two of the many examples of fixed expenses. A typical small to mid-sized business (SMB) likely has more than a dozen different fixed expenses.

After reading the definition of a fixed expense above, you probably have a good idea of the definition of a variable expense. While fixed expenses remain the same from month to month (or any interval), variable expenses are subject to change. From a consumer’s standpoint, variable expenses may include the cost of eating out, buying clothes, going to the movies, or even cellphone usage. Granted, there’s a chance that variable expenses such as these will be the same, this typically does not happen. Instead, the variable expense differs from month to month.

Small business owners should focus on reducing both their fixed and variable expenses to maximize their net revenue. Regardless of the business’s niche or industry, there are ways to reduce both fixed and variable expenses. One of the easiest and most effective ways to reduce variable expenses, for instance, is to evaluate your utilities. You can’t necessarily cut off your utilities, but you can probably lower the cost by implementing some energy-efficient practices in your business.

For fixed expenses, business owners can look towards alternative providers. Using the example mentioned above, if you are currently paying $100 for a business phone line, perhaps you can shop around to see if other telecommunications companies are offering a similar service for less. With a little bit of luck, you can score the same or similar service for less; thus, reducing one of your fixed expenses.

Have anything else that you would like to add? Let us know in the comments section below!

How to Create an Send and Accountant’s Copy in Quickbooks

computer-811991_960_720It’s not uncommon for small businesses to outsource bookkeeping to a professional accountant. After all, when you’re busy performing the countless number of tasks that go into running a business, you may lack the time (and resources) needed to keep track of your business-related income and expenses. But if you take the route of hiring a professional accountant, you should provide him or her with an accountant’s copy of your Quickbooks file and not the actual company file.

So, what exactly is an accountant’s copy and why should you use it? As the name suggests, an accountant’s copy is a slimmed-down version of a Quickbooks company file that’s tailored specifically for accountants. The accountant can make changes to the file while the business owner — or other workers — continue to work on it. After making these changes, the accountant can simply email or otherwise send you the file.

Before we start, it’s important to note that Advanced Inventory (AI) must be disabled before attempting to create or import an accountant’s copy.

When you are ready to create an accountant’s copy, log into your Quickbooks account and choosing File > Accountant’s Copy > Save File > Accountant’s Copy > Next. Now go ahead and choose the dividing date and location, at which point you can click “Save” to complete the process. Last but not least, provide the accountant’s copy transfer file (.qbx extension_ to your account using email or digital media. Sorry if you were expecting more, but that’s all it takes to create and send an accountant’s copy in Quickbooks!

There’s a different method available, however, that some users may prefer. This method leverages the power of Intuit’s file transfer service. Simply choose File > Accountant’s Copy > Send to Accountant > Next > choose the dividing date > Next > enter the accountant’s email address, reenter this email address > enter your name and email address > Next > create a password to encrypt the file > reenter the password > enter any notes (optional) > click Send.

But what if your accountant did not receive the accountant’s copy you sent? In this case, you should check to make sure there are no restrictions on your company file. If restrictions are set up, it may prevent your accountant from receiving the file. Such restrictions are easily removed, however, by following the steps listed here.

Did this tutorial work for you? Let us know in the comments section below!

Calculating the Cost of Goods Sold (COGS)

business-1370984_960_72022There are a lot of metrics small business owners must watch, some of which are obvious while others are not-so-obvious. One of the lesser-known metrics is cost of goods sold (COGS). As the name suggests, this is to the total cost of the merchandise that a company has sold. COGS can be calculated by the retailer, product manufacturer or product distributor.

So, what’s the purpose of keeping track of COGS? Aside from the fact that it’s a good accounting practice, doing so will prove useful come tax time. This is because COGS is reported as a business-related expense for the associated accounting period. Small business owners must match the COGS with the revenue produced from the sold goods to achieve the matching principle of accounting. Therefore, the total sales revenue minus the COGS equals the gross profit.

There are a couple different ways to calculate COGS, one of which is to adjust the total cost of goods purchased or manufactured by the difference in inventory of the final products. If 500 product units were purchased but your inventory increased by 50, then the cost of 450 product units would be your COGS. Here’s another example: if 2000 product units were purchased and your inventory increased by 1000, then the cost of 1000 units would be your COGS. Following this formula is actually pretty simple and straightforward, which is why many small business owners and professional accountants prefer it.

If that method sounds too confusing, however, there’s an alternative technique used to calculate the COGS. It involves adding your starting product inventory to the total cost of goods purchased or manufactured, and then subtracting this amount by your ending inventory.

Being a small business owners requires you to keep track of lots of metrics, which can prove tedious and daunting to some. Once you learn the ropes of metrics like gross revenue, net revenue and COGS, however, things become a little easier. This post should give you a better understanding of how to calculate COGS for your respective business. Regardless of what type of business you operate, calculating COGS remains roughly the same. Just use one of the two methods listed here and you’ll be well on your way to calculating the COGS.

 Hopefully, this will give you a better idea of COGS and how to calculate it.

Quickbooks Android App Now Supports Switching Companies

office-620823_960_720Good news accountants: The Quickbooks app for Android devices now supports switching between different companies.

It’s not uncommon for professional accountants to handle bookkeeping for several different companies. While Quickbooks supports the use of multiple companies in its software, this feature has been lacking in its compatible Android app — up until now at least.

In a recent blog post, Intuit announced that the latest release of Quickbooks Android supports the use of multiple companies. So, what does this mean exactly? Assuming you have two or more company subscriptions in Quickbooks Online — Intuit’s cloud-based subscription model for Quickbooks — you can alternate between them on your Android smartphone or tablet. It’s a relatively simple feature that’s sure to improve the productivity and efficiency for many professional accountants who Quickbooks.

As explained by Intuit, users can have multiple subscriptions in Quickbooks Online with as many companies as they’d like. The latest version of the Quickbooks app for Android further enhances the app’s utility by supporting the use of multiple companies.

You can have multiple company subscriptions in QuickBooks Online and have as many QuickBooks Online companies as you’d like. And now, with the latest release of QuickBooks Android, you can easily switch between your companies on your phone or tablet,” wrote Quickbooks when announcing the change.

So, how exactly do you switch between companies in the new Quickbooks app for Android? After downloading the new app, double-tap it to open and then access the main menu. From here, you can tap your company to bring up a list of all your associated companies for which you have a paid Quickbooks Online subscription. Now choose the other company and it will switch to that company. Sorry if you were expecting more, but that’s all it takes to switch between companies in the new Quickbooks app for Android!

Support for multiple companies isn’t the only change Intuit made to its Android app. This release, like many before it, brought new performance improvements and security enhancements.

If you’re interested in downloading and using the new Quickbooks Android app, you can access it either on Google Play or by visiting this link. Quickbooks Android is free to download, although you’ll need a paid Quickbooks Online subscription to access all of its features, including the ability to switch between different companies.

What do you think of the new Quickbooks Android app?

Records that Small Business Owners Need to Keep

workbook-1205044_960_720Good accounting practices are critical to running a successful small business. Unfortunately, many small business owners overlook this step, assuming it’s nothing more than a waste of time. But when tax time rolls around the following April, they are left scrambling to find their financial records and other related documents. This is why it’s a good idea to start keeping good records from the moment you launch your business. So, what records exactly should you keep?

Business Expenses

Arguably, one of the most important records to maintain is your business-related expenses. In other words, you’ll need records of each and every expense that’s directly associated with running your business. When it comes time to do your taxes, you can write these expenses off, allowing you to keep more of your business’s revenue. Without proper records, the Internal Revenue Service (IRS) may deny your expenses.


Of course, it’s a good idea to keep copies of any contracts you have with clients, customers or other businesses. Even if you never need them, having them on hand will provide a source of reference. If you tend to lose paper documents — like many small business owners do — consider scanning your paper contracts and storing the digital copies on your computer or an external storage device.


Assuming you have one or more employees on your business’s payroll, you’ll need to records of how much you pay them and when. While payroll records isn’t a requirement when running a sole proprietorship, it is a requirement when running a Corporation. Talk with a professional accountant for more information about payroll bookkeeping.

Bank Statements

Try to get into the habit of storing records of all business bank accounts, including monthly statements. The good news is that even if you lose any of your bank statements, you can typically purchase copies from the banks. Banks are required by federal law to maintain records of customers’ bank accounts for a minimum of seven years. Assuming you are within this limit, you can request a copy from your bank.

These are just a few of the many records that you’ll want to keep when running a small business. Other records to keep include credit card statements, loan documents, petty cash, travel receipts, quarterly tax payments (estimated), inventory, check stubs and income.

Did we leave anything out? Let us know in the comments section below!

How to Write Off Bad Debt in Quickbooks

hand-1248053_960_720If you recently sold a product or service but don’t expect the customer to pay, you’ll need to write this “bad debt” off in your respective accounting software. Thankfully, Quickbooks makes it handling bad debt such as this a breeze. In just a few simple steps, you can write it off so you aren’t forced to pay income taxes on it.

There are actually several different ways to handle bad debt in Quickbooks, one of the easiest being the cash basis method. Assuming you file your taxes on a cash basis, this is the best way to handle bad debt. To do so, log into your Quickbooks account and void the original invoice by choosing Customers > select the appropriate customer > Open Invoices > choose the date range > select the invoice > More > Void > confirm that you wish to void the invoice by clicking “Yes.” If you have multiple invoices that you with to avoid, repeat these steps and choose the appropriate invoice.

It’s a good idea to get into the habit of adding a memo to the voided invoice so you know it’s bad debt. Voiding an invoice doesn’t delete it, so you can still reopen it and add a memo. Go back into the voided invoice and enter “Bad Debt,” along with any other information that you wish to keep for reference purposes. When you are finished, click Save to complete the process.

But what if the customer paid part of an invoice? In this case, you’ll want to open the original invoice and enter a new line using the product or service. Next, change the description to “Bad Debt,” and under the amount field, enter the balance due in the form of a negative number. If the customer owes $300, for instance, enter “-$300” in the amount field. Click Save to complete the process.

You can also make a note of a customer’s bad debt by accessing Customers > choose the customer from the drop-down list > Edit >  and in the “Display Name as” field, type “Bad Debt” or “No Credit.” When you are finished, click save to complete the process. This note will appear in lists and reports when you create a sales transaction in which the customer’s name is selected. It will not show up, however, in cash-only invoices with the respective customer.

Did this tutorial work for you? Let us know in the comments section below!

Benefits of Using a Limited Liability Company (LLC) for Your Business

advertising-1238595_960_720One of the many decisions you’ll have to make when starting a business is choosing the right legal entity. There are several different legal entities available for business owners, including a sole proprietorship, S-Corp, C-Corp and limited liability company (LLC). Sole proprietorship, for instance, is the most basic structure, requiring no additional steps to be taken. Today, however, we’re going to take a closer look at one of the most popular and frequently used legal entities, LLC.

Asset Protection

The single greatest benefit of using an LLC is asset protection. Basically, operating under an LLC protects the owner or owner’s personal assets from business-related debts and liabilities. If your business goes under and you have outstanding debt, creditors can not pursue your personal assets (e.g. savings account, house, car, etc.) for repayment. This is in stark contrast to operating as a proprietorship, which offers zero protection of personal assets.

Pass-Through Taxes

Another advantage of operating as a LLC is the simple fact that taxes are paid on an individual level, not a business level. Income is passed through to the LLC’s owners, with the respective owner reporting it on his or her tax returns. It’s a simple format for handling income and expenses, eliminating many of the otherwise confusing nuances of Corporation tax filings.


Of course, there’s also the benefit of added credibility and trust associated with LLCs. Ask yourself, which business would you trust more: a business that operates under the owner’s real name, or a business that operates under a branded LLC name? If you chose the latter, you aren’t alone. Most consumers trust LLCs over sole proprietorships, making this the preferred legal entity of the two.

Minimal Restrictions

When compared to S-Corps and C-Corps, LLCs have minimal restrictions on the owners. This means you can spend more time running and growing your business, and less time worrying about the nuances of taxing and accounting.

These are just a few of the most noteworthy benefits associated with LLCs. It’s important to note, however, that there are also some disadvantages associated with this legal structure, such as the increased difficulty of transferring ownership. If you want to sell your LLC, you’ll have to jump through some additional hoops to do so. This doesn’t necessarily mean that you can’t sell it, rather it’s more difficult to sell when compared to a business operated as a sole proprietorship.



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