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QuickBooks How To | Lesson #28 Terrance Inc Beginning Balances & Journal Entries | Free QuickBooks
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Oct 4, 2022
QuickBooks How To | Lesson #28 Terrance Inc Beginning Balances & Journal Entries | Free QuickBooks Online Training Take the frustration and headaches out of using QuickBooks Online with this step-by-step tutorial series. Brought to you by accounting educator and Advanced Certified ProAdvisor, Caroline Grimm and her sidekick Terrance the T-Rex. Helpful Videos: Financial Statements for Compete Beginners https://youtu.be/_SRscyHHXDc Accounting Equation Demystified https://youtu.be/hsx0VHi_lzk Normal Balances Simplified https://youtu.be/vgkfujPyis8 Debits and Credits Explained https://youtu.be/rGRnGiGtOaw Chart of Accounts Explained https://youtu.be/VPGEsughzgc 🎥 Playlists: QuickBooks How To | Free QuickBooks Online Training: https://youtube.com/playlist?list=PLPDomDzptO13gjIPUwzZWdERq7Tsr02RP 🔥 Smoking Hot Deal! Use this link https://quickbooks.grsm.io/accounting-how-to to access special pricing for new QuickBooks customers. Accounting How To receives a small commission if you sign up through this link. That helps keep this channel going and makes sure Terrance gets enough snacks so he doesn’t get hangry. Nobody likes a hangry T-Rex. 👹 Get Caroline’s books on Amazon:
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Hello and welcome back. I feel like we've been spending a lot of time together
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How you doing? You're doing okay? Yeah? Okay. So in this video I want to talk about beginning
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balances. When we're talking about QuickBooks, beginning balances are something that's usually only
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going to happen in the beginning part of your QuickBooks journey. So let's start out with
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what a beginning balance is. So a beginning balance is the point where we are starting in QuickBooks
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and we're going to tell QuickBooks about any of our accounts that currently have a balance in them
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For example, our checking account. So if on the 30th of the month before we start QuickBooks, we have $10,000 in our bank account
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then on the first day we're using QuickBooks, the first day of the next month
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we're going to enter a beginning balance of $10,000. So it's the point where your balance has ended the day before you start using QuickBooks
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And when you set up QuickBooks, part of the setup process is telling you, quickbooks, what day specifically you're going to start using QuickBooks. And everything that's gone
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before, all of those balances that you have at the moment you start QuickBooks are the balances you're
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going to be bringing in to QuickBooks. Now, when we're talking about accounting, accounting is
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always based on periods of time. So it's based on a month or a quarter or a year. So when we are
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starting with QuickBooks, we only want to start on the first day of a month. It doesn't matter which
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month. So long as this is the first day of the month. Now, when we were setting up our chart of
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accounts, at that point in time, we could have entered our beginning balances right there. So let's
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jump over and take a look at what that would have looked like. Let's say we're going to add a new
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account and we're going to add a new bank account. We're going to say save it under bank accounts
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and we're going to enter the typical information. Well, right down here, a button that we didn't use
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before says starting date and opening balance. This is the point where we're going to start tracking
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this account in QuickBooks. So let's say it's beginning of this month. So what we want to see here
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is the ending balance from the previous month. So if that account had $500 in it, we would enter that
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here. Now, what's going to happen if we do this is that this amount is going to be offset because
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every transaction has two parts to it because of the accounting equation, A equals L plus E
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you know, right here. So when we enter a beginning balance using this method, the other side of this
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account is going to be that opening balance equity account that I mentioned a long time ago
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Opening balance equity is just a repository for these beginning balances Once they go into opening balance equity we need to adjust that account when we done
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to move it out of opening balance equity and into our regular equity account
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So the balance in opening balance equity should always be zero. But if we did it this way
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entering those new balances as we went through, it would have all ended up in opening balance equity
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and then we would have done a journal entry to move it out of opening
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balance equity and into our regular equity accounts. So that's one method for entering beginning
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balances and completely fine to do that. No problems with that. So I'm going to cancel out of here
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and then we're going to look at entering opening balances using a journal entry. Now what's a journal
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entry? I'll drop a video below so that you can review journal entries if you haven't watched that
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video yet. So to access the journal entry part of QuickBooks, plus new and we're going to come
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over to the other column and we're going to go to journal entry. So here
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is the very first journal entry for Terrence, Inc. And we know it's the first one because journal entries are numbered sequentially, and
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the journal entry number here is one. And you can change this journal entry number to be whatever you need it to be
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But for the purposes of this exercise, we are going to leave it as one
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And then for the journal entry date, we're usually going to be only doing journal entries
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at the very beginning of the company or at the end of each month, if we're doing adjusting
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entries for things like depreciation expense. So in this case, we want this to be the very first
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date that we started using QuickBooks or Terrence, Inc, because these are our beginning balances
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So we're going to choose one-one. So here we can see we've got a bunch of different lines
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and we've got a line for the account. We've got a debit column and a credit column. Debits and
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credits are simply the way that we tell an account that we want to increase it or decrease it
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and that's based on normal balances. And I'll pop that video down below. as well, so you can review that if you need to. The description line, and this is for us to say
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we did a thing, right? We did a thing, and it will usually be something like to record
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depreciation expense, to record beginning balances. And then in the name column, this is something
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that's going to impact a customer or it's going to impact a vendor. And if we click on this
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down arrow, we can see that we've got one customer, Meg Allen Don, and we've got several
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vendors that we set up previously. So the time that we would use this, would be if we were entering accounts receivable or accounts payable
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Now when we click on the account down arrow, we can see that it brings up all of our accounts
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We just got to scroll down and everything in our chart of accounts is here Now I going to bring in a spreadsheet because you know I like my spreadsheets right And what I done here is I have put together the journal entry
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that we need to record our beginning balances. So here on the left, these are all of the accounts that we had
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that had beginning balances, and then these are the balances in those accounts
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So, for example, in our checking account, our first Dino Operations account
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we had $72,400 as a balance on December 31st. So now on January 1st, we're going to be entering
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this beginning balance so that it's in our check register in QuickBooks. We also previously had
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set up a petty cash account, and that's got $100 in it. And we've got an accounts receivable
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balance of $5,000. Now, we don't currently have a balance in our inventory asset account because we
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haven't ordered our merchandise yet. The next line, our furniture and fixtures, these are items
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that we already had purchased for the business. And the same thing with tools, machinery
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and equipment. These were things that we already had purchased. So we just need to get those
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balances onto our balance sheets so that we can keep track of those. We also have some patents in
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our business. We have a patent on the Dino Blast 3,000 power washer, for example. So the cost
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of getting those patents, we're going to add to our financial statements as an asset
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because that's something that has value over a long period of time, and we're going to use that
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asset to make money. And then we have startup and organizational costs. These are the expenses
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that we incurred in setting up the business. So there are things like filing paperwork with the
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state to incorporate the business for our lawyers or accountants that we consulted at the beginning
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And this allows us to spread those costs out over a period of time, rather than taking all of them
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as expenses and driving our profits down before we even have a chance to get any revenue
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And then we have accounts payable. So these are bills that we previously got from our vendors
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but we haven't paid them yet. And then we also had our original investment of $100,000
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which we're going to put in an equity account called common stock. So if we were to enter this
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journal entry, a couple of things would happen. QuickBooks would say, first of all
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that I cannot use an accounts receivable account and an accounts payable account in the same journal entry
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That is a QuickBooks thing. So we could separate this out and make it be two different journal entries
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And the second thing with accounts receivable inventory and accounts payable is there are details behind us that we need to capture So here what I want to do with this journal entry I want to get rid of the accounts receivable part I want to get rid of the accounts payable part We didn have anything in inventory asset
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But if there was, I would want to back that out. So what I've done in the second iteration of our journal entry is I've gotten rid of the
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accounts receivable. I've gotten rid of the accounts payable. And if there was an inventory asset, I would have gotten rid of that as well
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So when I took those amounts, I needed to adjust the equity piece of it because we haven't
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captured all of that yet. When we enter those invoices that are outstanding, the bills that are outstanding
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then we're going to have to circle back around and adjust this equity amount again
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But for the purposes of getting our balances set up, we're going to do this journal entry
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So as I start to enter this journal entry, I'm going to pull down the account from the account
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drop down menu, and this is our first Dino Operations account, and I said that we had a balance
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of $72,400. We know it is a debit balance because a checking account is an asset
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an asset has a normal debit balance, so it's going to go in the debit column. And I typed in a
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description to record beginning balances. When I went to the second row, it automatically brought down
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the same description. Now, if you were doing different things within this journal entry
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you can change that description. And what this does is it reminds me of why I did this journal
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entry. And if I handed this off to a CPA to do my taxes, the CPA could look at that journal
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entry and say, okay, they were recording beginning balances. And then I'm going to continue
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on to fill out the rest of this journal entry. So I'm going to go ahead and do that and I'll be right
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back. Okay, so I've got my journal entry filled in. I put all my debits in the debit column
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and then I have one credit. And when I get down to the bottom, QuickBooks is going to automatically
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plug in the number that this should be. So in this case, this is exactly the number that we expect to see
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there. And so we are all done with this journal entry. We will save and close. So coming back to our
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chart of accounts window, we can now see that our checking account balance jumped up by $72,400
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And our petty cash has jumped up by $100. We come down here to our furniture and fixtures
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our tools and machinery. Now, if we jump over to reports and we go to our balance sheet
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you can see that we now have our balances coming up on the balance sheet. So the only thing
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that we're missing at this point is our accounts receivable and our accounts payable. And we're
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going to take care of those in the accounts payable and the accounts receivable module so that we can
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see the whole process. And we will come back to this balance sheet once we have completed that
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So next up, we're going to be working with purchasing and accounts payable. I will see you in the next video
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