Episode 25
Episode 25: Accounting 101 for Business Owners, Part Two: Where the Foundations Show Up in QuickBooks
Episode Title
Episode 25: Accounting 101 for Business Owners, Part Two: Where the Foundations Show Up in QuickBooks
In this episode of QuickBooks Mastery for Small Business Success, father-daughter team Erica Northrup and Lee Davis continue their Accounting 101 conversation by showing where the basic accounting foundations actually appear inside QuickBooks.
Last week, Erica and Lee covered the core accounting terms every business owner should understand: income, expenses, assets, liabilities, equity, the Profit & Loss, the Balance Sheet, and why your bank balance is not the same thing as profit.
This week, they take those concepts one step further and connect them directly to QuickBooks.
You will learn how the Chart of Accounts organizes your financial information, why choosing the right category matters, how income and expenses build your Profit & Loss, and how assets, liabilities, and equity show up on your Balance Sheet.
This episode is designed to help business owners understand that QuickBooks is not just asking for labels when it asks you to choose a category. It is asking where each transaction belongs in the accounting system.
And when those choices are made correctly, your reports become clearer, more useful, and more trustworthy.
This is now part two of a three-part Accounting 101 series. Next week, Erica and Lee will continue the conversation by explaining how QuickBooks forms — invoices, bills, checks, expenses, sales receipts, and payments — connect to what actually happened in your business.
Key Takeaways
- The Chart of Accounts is the backbone of your QuickBooks file.
- Every transaction in QuickBooks connects to an account.
- Income, expenses, and cost of goods sold affect the Profit & Loss.
- Assets, liabilities, and equity affect the Balance Sheet.
- A clean Chart of Accounts makes reports easier to understand.
- Too many accounts, duplicate accounts, and wrong account types can create confusion.
- Loan payments, owner draws, payroll, and personal expenses are often miscategorized.
- QuickBooks categories determine where transactions show up in your reports.
- If your reports look wrong, the issue is often hidden in the transactions that fed the report.
- This episode sets up next week’s final part on QuickBooks forms.
Questions to Reflect On
- Do you understand what your Chart of Accounts is doing inside QuickBooks?
- Are your income and expense categories simple, clear, and useful?
- Do you know which transactions belong on the Profit & Loss versus the Balance Sheet?
- Are loan payments, owner draws, payroll, and credit card balances being handled correctly?
- If you opened your Profit & Loss or Balance Sheet today, would you trust the story your numbers are telling?
Mentioned in This Episode
Free QuickBooks Clarity Scorecard
Download at: https://lee-davis-and-company.aweb.page/unlock-clarity-free-scorecard
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Recommended Resources
- QuickBooks Clarity Scorecard
- Episode 24: Accounting 101 for Business Owners, Part One
- Episode 26: Accounting 101 for Business Owners, Part Three — coming next week
Timestamps
00:53 - Welcome to Part Two of Accounting 101 for Business Owners
03:05 - Why the Chart of Accounts is the foundation inside QuickBooks
05:46 - Common Chart of Accounts mistakes business owners make
10:40 - How income and expenses connect to the Profit & Loss
19:00 - What belongs on the Balance Sheet in QuickBooks
22:06 - Why liabilities, credit cards, and loans matter
27:35 - Why miscategorized transactions make reports tell the wrong story
29:10 - Why this conversation is becoming a three-part series
30:48 - Free QuickBooks Clarity Scorecard and final call to action
Call to Action
If this episode helped you better understand where accounting foundations show up inside QuickBooks, make sure you subscribe so you do not miss the final part of this three-part Accounting 101 series.
And if you are wondering whether your own QuickBooks file is giving you clear, reliable numbers, download our free QuickBooks Clarity Scorecard.
It will help you take a step back and identify where your QuickBooks file is clear, where it may be confusing, and where there may be gaps affecting your numbers.
Download the free scorecard here:
https://lee-davis-and-company.aweb.page/unlock-clarity-free-scorecard
Have a QuickBooks question you would like us to answer in a future episode? Send it to:
support@leedavisandcompany.com
Transcript
Welcome to QuickBooks mastery for small Business Success.
Speaker A:I'm Erica Northrup.
Speaker B:And I'm Lee Davis.
Speaker A:I handle the tech and he handles the numbers.
Speaker A:And together as a father daughter team, we bring decades of experience helping small to medium sized businesses thrive.
Speaker B:We know that as a business owner, your time is best spent mastering your craft and growing your business, not getting lost in QuickBooks.
Speaker B:Managing finances can be confusing and you don't have hours to waste sorting through spreadsheets or fixing bookkeeping mistakes.
Speaker B:That's where we come in, helping you streamline QuickBooks so you can focus on building your business.
Speaker A:Each week we break it all down into simple, actionable steps so you can focus on growing your business, not fixing your books.
Speaker B:Let's embark on this journey together.
Speaker A:Welcome back to QuickBooks mastery for small Business Success.
Speaker A:Hi, I'm Erica Northrup, here with my papa, Lee Davis.
Speaker A:And this is episode 25's accounting 101 for business owners part two, where the foundations show up in QuickBooks.
Speaker A:Last week we started our accounting 101 conversation by going back to the simple foundations behind accounting.
Speaker A:We talked about income, expenses, assets, liabilities, equity, the profit and loss, the balance sheet, and why your bank balance is not the same as profit.
Speaker A:And the whole point of that episode was this.
Speaker A:You do not need to become an accountant to run your business well, but you do need to understand the basic structure that QuickBooks is built on.
Speaker A:Today we're taking the next step because it's one thing to hear those accounting terms, it's another thing to understand where they actually show up inside of QuickBooks.
Speaker A:So today we're going to connect the dots.
Speaker A:When QuickBooks asks you to choose an account, what does that mean?
Speaker A:When you see income on your profit and loss, where did that come from?
Speaker A:When you see a loan on a balance sheet, why is it not just an expense?
Speaker A:When you categorize something from the bank feed, what is QuickBooks actually doing with that transaction?
Speaker A:That's what we're talking about today.
Speaker A:We're going to take the foundations from last week and apply them directly to QuickBooks.
Speaker A:So, Papa, I think this is where a lot of business owners get stuck.
Speaker A:They may hear terms like income, expenses, assets, liabilities or equity, but they don't always know where those terms live inside of QuickBooks.
Speaker A:Okay, so coming out of last week's accounting 101 episode, why is it so important for business owners to understand where those accounting terms show up inside of QuickBooks?
Speaker B:Papa, QuickBooks has its own terminology.
Speaker B:While some of it's standard for sure and Some of that terminology is just applicable to how QuickBooks processes information.
Speaker B:So it's important to know the difference for sure.
Speaker A:I think the best place to start is with something business owners may have heard of, but may not fully understand, the chart of accounts, because really, this is where the accounting foundation lives inside of QuickBooks.
Speaker A:Would you agree, Papa?
Speaker B:Absolutely.
Speaker B:I think when you set up your company in QuickBooks, for the desktop people, it's a lot more industry specific, but for the online people, it's a little bit more vague as to the type of company that you would be setting up.
Speaker B:And therefore, it may not be as customized on your chart of accounts, but it starts with the setup.
Speaker B:And I think a lot of users that I've worked with in setting it up, sometimes they have some industry standard chart of accounts they want, and that's sometimes very helpful if they give that to me or I go out and find it, and I can marry that with how QuickBooks sets up the chart of accounts.
Speaker A:Okay, so let's just take a little bit of a deeper dive into what the chart of accounts is so people really have a clear view of what that is specifically inside a QuickBook.
Speaker B:Absolutely.
Speaker B:I think when you look at the way QuickBooks is, the chart of accounts works.
Speaker B:It will start with assets.
Speaker B:So it starts with a checking account and moves down the asset line.
Speaker B:So all of your assets are grouped together, all of your liabilities show up, all of your income is then listed, and then your cost of goods sold, your equity, and then your expenses.
Speaker B:So it's got an order to the chart of accounts.
Speaker B:And for those clients who like to have their accounts numbered, the standard is usually 1 through 5.
Speaker B:Liabilities to cost of goods sold, 3, and then liabilities 4.
Speaker B:And owner equity is going to be 5.
Speaker B:And so it's going to fall into a numbering sequence.
Speaker B:Some of my clients don't have the accounts numbered, but most accountants who take over and work in their QuickBooks files want to pair their accounts with theirs so they get numbered.
Speaker A:Okay.
Speaker B:It all goes in how their accounting software works.
Speaker B:Yeah.
Speaker A:So let's talk about what are some of the common issues that we see with the chart of accounts.
Speaker B:Yeah, I would say that generally when people are setting up their chart of accounts, there are too many accounts.
Speaker B:And as we talked about in previous podcasts, get the Schedule C off the IRS and use that as your basis for at least the shell.
Speaker B:You may have some specific accounts that you will want and that we would set up for you, but basically start there so you don't have too Many accounts, you can always add accounts.
Speaker B:Sometimes I find people have duplicate accounts.
Speaker B:A good example is they might have office expense, and then they might have expense office, or again, they didn't realize they had the account set up.
Speaker B:So when you set up your chart of accounts, make sure you keep a master list in a file, whether that's an electronic file or however you keep your work so that you know that you don't want to set up duplicate accounts.
Speaker B:And sometimes people set up in accounts, they, instead of using classes, which is what QuickBooks uses to track departments or various income streams, they will set up all these accounts with multiple departments.
Speaker B:And that's way too many accounts.
Speaker B:And then according to accounting standards, when you look at setting up an account, there's an account type in QuickBooks and the Detail, and that's important because all of that feeds into if your CPA uses your QuickBooks to do your tax return.
Speaker B:So again, it helps so understand how the account types work and the detail.
Speaker B:And QuickBooks walks you through the various options and what we also see, quite often his personal expenses get mixed up with business expenses because they don't know where they would categorize that.
Speaker B:And I said that's because it shouldn't be categorized under a business expense.
Speaker B:It's a draw.
Speaker B:And recently I was working with a client who unfortunately, in years past, when we were paying off a loan and interest payments correctly, so he lost out on a very substantial tax deduction because they didn't set up their payment, their loan payments correctly.
Speaker B:And then owners draw.
Speaker B:Sometimes the owner thinks, I can take that as an expense.
Speaker B:No, if it is an LLC draw.
Speaker B:Now you can go back and listen to some of our podcasts, which we talk about types of companies and how you might set it up so you can take your compensation or your salary as an expense.
Speaker B:And sometimes businesses will go through that process.
Speaker B:And payroll is not reported to the correct general ledger and expense accounts because QuickBooks people will use the bank feed and they'll just put it all into expense.
Speaker B:So you need to have a little accounting expertise there and set up some standard journal entries.
Speaker B:And I think the journal entries are not made correctly.
Speaker B:Again, you aren't trained in accounting, but you know, if you had a template to work off of, you could frankly use your general journal entries and they would be a great tool.
Speaker B:Business owners don't need to memorize the whole chart of accounts.
Speaker B:They should understand what it does in some of the format, the way it is structured.
Speaker A:Absolutely.
Speaker A:And that is what we are becoming masters at over here.
Speaker A:In our little nook of the Internet where we are deep diving to everything about QuickBooks and business and all of that is to equip you, the business owner, with the language and the tools that are going to help you to understand your finances and understand your QuickBooks and understand when you're having these conversations with your accountant, with your bookkeeper.
Speaker A:So you're able to make the best informed decisions you possibly can.
Speaker A:So I think that's great.
Speaker A:That's absolutely what this is all about.
Speaker A:But that was such a helpful way to put it and really break down the chart of accounts for us.
Speaker A:So when QuickBooks asks you to choose a category, it's not just asking for a label.
Speaker A:It is asking where that transaction belongs in the accounting system.
Speaker A:And that category choice determines where the transactions show up later on the profit and loss or the balance sheet.
Speaker A:So that's why the chart of accounts matters so much.
Speaker A:It's not just a list, it's the structure behind the numbers.
Speaker A:Would you agree to that?
Speaker B:Absolutely.
Speaker A:Awesome.
Speaker A:Okay, so if the chart of accounts is the structure, let's start with the categories business owners usually recognize first, which is income and expenses.
Speaker A:And we took a deep dive last week into what income and expenses are.
Speaker A:But these are the ones that most people associate with profit.
Speaker A:So where do income and expenses show up inside QuickBooks and how do they connect to the profit and loss?
Speaker B:They're a summary.
Speaker B:So what happens in the profit and loss is it will start with reporting the income.
Speaker B:And so the thing about QuickBooks is that you can just click on a number and it will give you a summary.
Speaker B:So if it happens to be your income number, just click on that number and it'll give you a quick summary of what makes up the total of that number.
Speaker B:Looking at the profit and loss, you can quickly see if all your income is being reported.
Speaker B:Just buy an eyeball approach and then you can look at your cost of goods sold.
Speaker B:And then of course, you can see the bigger items and cost of goods sold, like wages, because that's a big number that people will oftentimes look at and say, wow, I paid all that money out.
Speaker B:And so again, you might look at a big number like health insurance, the expenses.
Speaker B:Okay.
Speaker B:Or rent or whatever number grabs your attention off the profit and loss.
Speaker A:Absolutely.
Speaker B:So I think that tool is just critical because you can go in and you can do a quick comparison for the same period.
Speaker B:So sometimes it's very helpful if you have some consistent numbers compared to year to year or month to month.
Speaker A:Ah, yeah, it's always so good.
Speaker A:So that income shows up on the profit and loss.
Speaker A:And what are some of those examples of the income that does show up on the profit and loss?
Speaker B:It depends how you decided to report your income.
Speaker B:Okay.
Speaker B:When you set up income, if you wanted various types of income, if you wanted to have your income broken down by some of the services you perform.
Speaker A:Yep.
Speaker B:Then you could make it a subcategory, a sub account of your total income.
Speaker B:So you can at a glance, rather have it one big bucket.
Speaker B:It gives you just some comparative.
Speaker B:I don't recommend too many breakdowns there because then I think you got to start thinking about classes, if you've got departments or whatever.
Speaker B:But if you've got three or four big income streams, you would set them up.
Speaker B:I find that helpful when you're looking at your income.
Speaker A:Okay, so good.
Speaker A:So let's take a bit of a deeper dive into expenses.
Speaker A:So where do expenses show up inside of QuickBooks?
Speaker B:You have to understand expenses are taken from the forms, income is taken from the invoices.
Speaker B:Right.
Speaker B:So.
Speaker B:And then you have some income that may show up in just some deposits, miscellaneous deposits.
Speaker B:But I think when you look at the way the expenses get reported in QuickBooks in those categories, they could come from checks that you write.
Speaker A:Yep.
Speaker B:Okay.
Speaker B:They could come from expenses on your credit card.
Speaker A:Yep.
Speaker B:They can also come from transactional work that may come through various vendors that you may get a ach, for example.
Speaker B:So there could be very tight bill types, if you would bills that there's a bill you set up and.
Speaker B:But there could be different payment streams that are going to show up as expenses.
Speaker B:So I think getting a clear breakdown of how you want to categorize those will make it a lot easier to analyze them.
Speaker A:Okay.
Speaker A:That makes a lot of sense.
Speaker A:And I suppose if you miscategorize those expenses, the business owner may not understand where that money really is going.
Speaker A:I think you come back to this time and time again.
Speaker A:It's really about the setup.
Speaker A:It is truly about the setup.
Speaker A:When you set up things correctly, everything just flows downstream the way it's supposed to go.
Speaker A:But if you don't have it set up, you've got a huge traffic jam, there's a huge dam all at the top of your food chain there that everything's not going to trickle down the way that it should.
Speaker B:I find when people set up their QuickBooks, they miss some of the boxes that you can check to say when you open up a vendor, memorize that transaction.
Speaker B:Pull that from the last encounter, because 80% or 85 or 90% of the transactions will all be the same for that vendor.
Speaker A:Yes.
Speaker B:Okay.
Speaker B:And.
Speaker B:And you just need to have them memorized in that check form or that bill so that they will record and give you a heads up on the accounts that you've used.
Speaker A:Okay, that makes sense.
Speaker A:So now let's dive a little deeper into profit and loss and that connection with QuickBooks.
Speaker A:So let's break that down there.
Speaker A:Where do we see these show up in QuickBooks?
Speaker B:Well, you're going to see it because the profit and loss is broken down by income minus your cost of goods sold, if you will.
Speaker B:What goes into selling your product is going to be your gross profit and then you're going to have your normal operating expenses that are going to be such as rent and the various software advertising supplies that would be not costs of goods sold related.
Speaker B:That's going to come up into your net profit.
Speaker A:Okay.
Speaker B:You pay taxes, business taxes, then they come out at the end because some of them and depreciation, they don't really fall into in terms of your net profit.
Speaker B:They're what happens based on the business operation.
Speaker B:And some people record business interest as part of their regular expenses.
Speaker B:And again, it's how they chose to set up their chart of account.
Speaker B:So you know, it really is a nice feature in the profit loss because you can compare apples to apples if you will.
Speaker A:Absolutely.
Speaker A:And again, we talked about this last week.
Speaker A:What is the profit and loss?
Speaker A:And it shows performance over a period of time where the balance, if I remember this correctly, the balance sheet is like a snapshot.
Speaker A:Right.
Speaker A:It's like instance.
Speaker A:Right.
Speaker A:Then that's correct.
Speaker A:Profit and loss is over the quarter, the year, year over year, whatever the case may be.
Speaker B:Yeah.
Speaker B:And if there's something that's nice about the profit and loss, you can click on the number.
Speaker B:If something got miscategorized right there, you can fix it and then refresh your screen and oh, magic.
Speaker A:Then it will update things.
Speaker B:That's right.
Speaker A:Yeah.
Speaker A:That's helpful to know, I guess.
Speaker A:This is where it starts to click.
Speaker A:If I categorize something to income, QuickBooks is going to treat it as money, the business earned.
Speaker A:If I categorize something to an expense or cost of goods sold, QuickBooks is going to treat it as a cost of running the business and those choices are what build the profit and loss.
Speaker A:So when a business owner opens their profit and loss and says this doesn't look right, the answer is hidden inside the report.
Speaker A:The answer is usually back in the transactions and categories that fed the report and that's where you were just talking about.
Speaker A:If a number's wrong, you can just change it or right then and it will refresh and update everything for you instantaneously, which is super helpful.
Speaker A:Okay, so now income and expenses are the part most business owners are familiar with.
Speaker A:But this is where we need to go one layer deeper because not everything belongs on the profit and loss.
Speaker A:Some things belong on the balance sheet, as we talked about last week.
Speaker A:So what kinds of things show up on the balance sheet inside QuickBooks?
Speaker A:And why do business owners need to.
Speaker B:Understand that cash shows up on the balance sheet?
Speaker B:Okay, so that's the big king number.
Speaker B:Okay.
Speaker B:The end users, they want to know what's your cash position?
Speaker A:Absolutely.
Speaker B:And then they move down the food chain.
Speaker B:All right.
Speaker B:Then they're going to want to take a look at what other type of assets do you have?
Speaker B:And particularly for people who are seeking a loan is they want to know their short and long term debt and who are all their debtors, who do they owe, how much, so they can look at the business's ability to pay back.
Speaker B:So frankly, the balance sheet becomes almost as important as the income statement when you're talking about how businesses use it.
Speaker B:And if you've got some balances that are out of whack on your balance sheet, in other words, they should be a credit and they're a debit.
Speaker B:There's a problem there.
Speaker A:You didn't do something right, you didn't.
Speaker B:Set up something right is not being reported correctly.
Speaker B:So anyway, I believe the balance sheet is a pretty good indicator of a company's health.
Speaker A:Yeah, absolutely.
Speaker B:Again, it's a snapshot.
Speaker A:Yep, yep, absolutely.
Speaker A:And so what are some of those other assets that QuickBooks may include other than cash?
Speaker B:Sometimes the assets might be a receivable.
Speaker B:So when you run it on the accrual basis, you get a good number about what's in accounts receivable.
Speaker B:So that's a pretty critical number.
Speaker B:Maybe you might have some employee receivables, for example, that an employee may have borrowed or, you know, they're paying it back over time.
Speaker B:Again, receivables are important because they tell you what's the indicator of what might come in the future, because cash is right now you can look at cash and say, yep, looks good, but what's coming in and how does that compare to the previous period?
Speaker B:So receivables are definitely a good item to look at on the balance sheet as well as accounts payable, because your payables are driven, frankly by what you have for outstanding Bills and including your credit card.
Speaker B:If you don't pay your credit card off monthly, it's going to show up as that liability.
Speaker A:That's a good transition into kind of a deep dive into liabilities and where they show up in QuickBooks.
Speaker A:Let's talk about that one next.
Speaker B:That's right.
Speaker B:Those liabilities are important because when you look at how much you owe, that it gets broken down into credit card debt.
Speaker B:And I think it's important because I was just looking at a client today who wasn't paying off their credit card debt and they were paying 25.9% interest on that balance.
Speaker B:So honestly, when you look at how you take care of your bills, your credit card should be one that's taken care of every single month.
Speaker B:And when you think about what you charge on your credit card, you must keep in mind that should be paid in 30 days.
Speaker A:Otherwise you're paying interest and high.
Speaker B:That's right.
Speaker B:And a significant amount.
Speaker B:And you have various loans.
Speaker B:A business takes out loans depends on.
Speaker B:Some startups will choose to do a home equity loan off of their personal residence.
Speaker B:Sometimes that's helpful.
Speaker B:And because that's lower interest, you want to stay away from these payday loans, these sharks who are charging a daily rate.
Speaker B:So loans can be pretty important that you have them broken down so you can see what my loans look like.
Speaker B:How does it compare to the previous year?
Speaker B:What is my line of credit?
Speaker B:You want to keep an eye on your line of credit because you don't want to go ahead and spend more just because you can do it.
Speaker B:The line of credit should be.
Speaker B:Exactly.
Speaker B:I think we've talked about this before from the banker's perspective, so that you can draw on it and pay it back, not so that you can draw on it and empty it out.
Speaker B:So I think there's a good way when you look at it and from a liability perspective, how you manage credit and then you get into the equity side of things and you see the owner draws and QuickBooks will calculate your current year earnings and your retained earnings.
Speaker B:All right, so those are numbers you don't really control.
Speaker B:You do, however, control open balance equity.
Speaker B:That's an account that is used normally when you set up your QuickBooks, you'll use that open balance equity and that will be an offset.
Speaker B:And usually at the end of your year, you should balance that out to.
Speaker B:To the equity overall.
Speaker B:Basically, open balance equity should be just that, open balance.
Speaker B:And once you close out the year, you should close out that account.
Speaker B:Equity can be confusing, but it matters.
Speaker B:Absolutely.
Speaker B:It Matters a great deal.
Speaker A:Okay.
Speaker A:And then what about the balance sheet connection?
Speaker A:Where do we see that show up inside of QuickBooks?
Speaker B:I think the balance sheet connection, as we talked about in the previous podcast, is that it's your assets, your liabilities, and your owner equity.
Speaker B:It's.
Speaker B:This is my company.
Speaker B:Right.
Speaker B:My profit and loss ICE income cost shows up in equity.
Speaker B:And how is that equity distributed?
Speaker B:It's just distributed in your assets, your liabilities, and your owner equity.
Speaker B:There are ways that.
Speaker B:And there are calculations and formulas that people use to look at companies.
Speaker B:So it's very important that you understand how your company stacks up.
Speaker A:Yeah.
Speaker B:In some of these ratios.
Speaker B:And as we've said before, it's a snapshot at a specific point in time.
Speaker B:And a lot of times companies will use the end of the year.
Speaker B:It's like the end of the year becomes really critical for their reporting because that's when companies want their end of the year statements and so forth.
Speaker B:So the businesses want to make sure that they are reporting accurately and that the end user of the information, whether it's the owner or whomever, becomes an end user, that it takes care of what they need.
Speaker A:Whoever that shareholder is in that business, that could be a number of different people, even in our business.
Speaker B:That's right.
Speaker A:The whole family is a shareholder in our business.
Speaker A:Right.
Speaker A:Play a part.
Speaker B:Yeah.
Speaker B:And everybody decides.
Speaker A:Yeah.
Speaker B:If they need that particular item.
Speaker A:Yep, absolutely.
Speaker B:Is that something that.
Speaker B:Oh, we could put that off.
Speaker B:We don't really need that, but.
Speaker B:Oh, no, we do need this because this helps us.
Speaker B:It helps our family, it brings us closer.
Speaker B:Or there are some decisions businesses make and they don't really pay attention to it.
Speaker B:Out of sight, out of mind.
Speaker B:And a credit card can be like that.
Speaker B:You know, people can think, oh, I can just, I can use it, the credit card.
Speaker B:I've got plenty of a line of credit without thinking about, what about my cash flow?
Speaker B:What does that look like?
Speaker A:You don't feel it in the moment, but you still certainly do feel it when you have to go pay off that credit card.
Speaker A:And now that chunk of change is a lot bigger because of everything you put on there.
Speaker B:That's correct.
Speaker A:Absolutely.
Speaker A:So I guess this is such an important distinction because from the business owner's perspective, it may all feel like money moving in or money moving out.
Speaker A:But from QuickBooks perspective, it's asking a more specific question.
Speaker A:Is this income?
Speaker A:Is this an expense?
Speaker A:Is this cost of goods sold?
Speaker A:Is this an asset?
Speaker A:Is this a liability?
Speaker A:Is this an equity?
Speaker A:So that's why it's so important that as business owners, we understand what all of those things are and to be able to then really translate that into QuickBooks.
Speaker A:And the reason that matters is because these categories do not all show up in the same place.
Speaker A:Income and expenses affect the profit and loss, assets, liabilities and equity.
Speaker A:They affect the balance sheet.
Speaker A:So if a loan payment gets treated like a regular expense, or an owner's draw gets treated like a payroll or subcontractor expense, the reports may start telling the wrong story.
Speaker A:So this is probably where we should bring in the forms a little bit, because QuickBooks is not just asking you to pick categories, as we have really started talking a lot about what what is a form.
Speaker A:It also asks you to choose forms, invoices, bills, checks, expenses, sales, receipts, payments.
Speaker A:And those forms matter because they tell QuickBooks what kind of accounting event happened.
Speaker A:Right?
Speaker A:Remember guys, what happens in real life, we need to report that in QuickBooks.
Speaker A:So this is where the, the rubber hits the road.
Speaker A:This is where all the magic kind of happens.
Speaker A:And we're actually going to pause the conversation right here.
Speaker A:When Peppa and I started this conversation, our goal was to take the accounting foundations we talked about from last week and show you where those terms actually show up inside of QuickBooks.
Speaker A:But as we got into it, we realized this conversation needed a little more room than one episode could reasonably hold.
Speaker A:So instead of rushing through it or giving you one very long episode, we're splitting it into one more part so we can keep it clear, practical and easy to follow.
Speaker A:Today we focused on where those accounting foundations show up inside of QuickBooks through the chart of accounts categories, the profit and loss, and the balance sheet.
Speaker A:So next week we're going to pick up right here and continue with the next layer.
Speaker A:QuickBooks Forms, Invoices, Bills, checks, expenses, sales, receipts, payments, and why those forms matter so much.
Speaker A:Because QuickBooks is not just asking where does this transaction belong, it is also asking what actually happened in the business, what actually happened in my business.
Speaker A:And once you understand both of those pieces, the category and the form, QuickBooks starts to make a whole lot more sense.
Speaker A:So make sure you stay tuned for the the final part of this now three part accounting 101 series.
Speaker A:And before you go, if this conversation is helping you realize that your QuickBooks file may not be as clear as it could be, we created a free resource for you.
Speaker A:It's called the QuickBooks Clarity Scorecard.
Speaker A:And it will help you take a step back and look at where your QuickBooks file is clear, where it may be confusing and where there may be gaps that are affecting your numbers.
Speaker A:You can download it for free for free using the link in the show notes or go to our website@leedavis and company.com because the goal is not just to enter transactions, the goal is to trust the story your numbers are telling you.
Speaker A:Thanks so much for listening you guys to QuickBooks mastery for small Businesses Success.
Speaker A:Make sure you subscribe so you don't miss the final part of this very exciting series and we'll see you next week.
Speaker A:Bye for now.
Speaker A:Thanks for tuning in to QuickBooks mastery for small Business Success.
Speaker B:If you enjoyed this episode, hit subscribe and stay connected with us at leedavis.
Speaker A:And company.com we know QuickBooks can be overwhelming, so we've put together a free resource to help help you get started right away.
Speaker A:Grab your copy at leedavis and company.com and when you do, you'll also get access to our VIP email list where we share exclusive QuickBooks tips, business strategies.
Speaker B:And support, and we'd love to hear from you.
Speaker B:If you have a QuickBooks question or a business challenge, send it our way@supporteadavisoncompany.com we might feature it in a future episode.
Speaker A:We're here to help you simplify QuickBooks and and grow your business one step at a time.
Speaker A:See you next time.
