QuickBooks Accounting 101

Accounts Used to track a company’s finances Separates income or expenses for individual totals Some are physical – bank accounts Some are “virtual” – income or expense accounts

Types of Accounts Asset Accounts – cash or things owned by company Liability Accounts – debts owed by the company Income Accounts – money the company has made Expense Accounts – money the company has spent

Assets, Liabilities, and Equity Assets – cash or things that can be converted to cash Current Assets – cash or cash equivalents Fixed Assets – land, buildings, machinery, etc. Liabilities – debts of the company Current Liabilities – paid off within one year Long-term Liabilities – mortgages, loans, etc.   Equity – the net worth of the company    

Assets, Liabilities, and Equity Assets - Liabilities = Equity Assets = Liabilities + Equity

Assets, Liabilities, and Equity: An Example Company A: Assets $1,000,000 Liabilities $750,000 Equity $250,000 Company then earns $100,000: Assets $1,100,000 Liabilities $750,000 Equity $350,000 Company then borrows $500,000: Assets $1,100,000 Liabilities $1,250,000 Equity -$150,000

Financial Reports Balance Sheet Profit and Loss Statement “Freezes” a company’s assets, liabilities, and equity at a point in time. Profit and Loss Statement Lists income and expenses for a specific time period.

Fiscal Years Calendar Year – Jan. 1st through Dec. 31st Fiscal Year – established by company May be mandated by law. Can be calendar year or another 12 month period. Tax Year - the 12-month period for which taxes are due.

Cash vs. Accrual Accounting Cash accounting Income is recorded when the money is deposited in the bank. Expenses are counted when the check is written to pay for them. Accrual accounting Income is recorded when the invoice is created. Expenses are counted as of the date of the bill from the vendor.