QuickBooks Using Other Accounts: Assets & Liabilities

Welcome back educator.com. This is lesson using other accounts, assets and liabilities as well as equities.0000

But the first thing we are going to talk about today is working with asset accounts.0008

And we are going to learn how to set up another asset account.0013

Other asset accounts that we have is we might have short-term and long-term assets.0016

Short-term asset is something that we know is likely will be able to convert a later to cash or something within a year.0022

So, we might only hold on to that asset for a year.0030

And in a long-term asset would be something that we are holding on to for more than a year.0034

For instance we might have prepaid rent. It could be a short-term asset.0038

So, we have prepaid 6 months in advance our rent.0043

So, that is going to be converted or it is going to be a no longer, an asset within 6 months.0046

So, that would be an example of a short-term asset.0054

In a long-term asset would be for instance maybe we have a truck or a vehicle.0059

Or a computer or something that has a life that is beyond 12 months.0063

A fixed assets also could be certain things for instance hardware equipment or the furniture, things of that nature.0068

Large, large pieces of items that are with our business.0076

So, a fixed asset can be also tracked. We are going to go through that as well.0080

So, working with asset accounts. We are going to learn how to set up an asset account.0085

The first thing we are going to do is from our home screen in QuickBooks if you have that open now.0090

We are going to go ahead and get into your home screen.0095

And here we have the, again, our little flowchart on how to get around on our QuickBooks.0099

And the first thing we want to do is we want to find our chart of accounts.0106

So, to get to our chart of accounts from the home screen.0110

It is located over here to the upper right portion of the home screen window.0113

Or, of course, we can go from listing, choose chart of accounts.0118

Here we are going to have our listing of all of our chart of accounts. All of our accounts are here listed.0124

The first thing we want to do is we want to look at the other accounts.0130

These are other current assets that we have.0134

For instance we have un-deposited funds, accounts receivable, inventory assets.0136

So, those are other accounts. OK?0142

The other thing that we want to do from the chart of accounts is we want to add one.0146

so, in order to add a new account from the account list menu at the bottom left.0150

We are going to click on account drop down menu or we are going to choose new.0157

From here we have a listing of types of accounts that we can create.0162

Income, expense, fixed assets, banks loans, credit cards, equity or other account types.0167

This is what we are going to be working with.0175

When we click on other account types it brings us a listing of the many and various account types that we have.0177

The one that we are going to go ahead and add today is the other current asset.0185

So, we click on that and the next thing we will do is click on continue.0193

It will bring us into the new account or add a new account window.0197

From here we have assigned numbers on my particular QuickBooks.0201

I am using assigned numbers to accounts.0206

So, with this I want to make sure that I have a number that is associated in sequence with my other assets accounts.0209

My other current asset accounts if I see them here.0217

You might not have your account numbers activated.0220

So, you can simply just put in the account name.0226

But for me I am going to add in other account number and I am going to add it as 14000.0229

Since I have the 121001280013 and so forth.0236

So, I am going to choose a 14000 number.0243

And what I am going to type in here, we are going to add prepaid rent as in other current asset.0246

Prepaid rent, again, once I said earlier we might have 6 months prepaid rent in advance.0254

So, we are going to put that up so we do not expense it right away.0261

It is not an expense until we actually use that or rent.0266

So, we will say prepaid rent in the account name field.0270

And under the opening balance click under enter opening balance here.0274

Here we are going to put in $6000.0282

It is what we prepaid it and that was as of 12-14-2015.0288

So, we have the opening of balance of what we have put in as rent as prepay.0296

And that was as of 12-14-2015 in this scenario.0302

We will go ahead and click OK from here. We have our account name, account number.0307

We can always add a description here that this is prepaid rent.0313

But it is kind of redundant at this point and we can click on save and close.0315

QuickBooks will now display our new account that we added under the other current asset listing for our chart of accounts.0321

As each month goes by we can certainly now expense a portion of that rent.0331

For instance if this is 6 months in advance rent that we have paid.0338

Every month we can now go into that register and record that as a rent expense.0343

So, we can go ahead and do that now.0349

In order to, for instance now January has come by and we want to record the first month rent that we have utilized.0351

We will go ahead and double click on our account, prepaid rent and it will pull up the register.0360

With this register we now can expense on 1-15-2016 rent expense.0367

Here we can say it is a $1000 as decreasing the value of our prepaid rent.0379

And we can assign that to rent expense which is 63900.0386

That is a rent expense category that we are choosing here.0392

And we can say this is for January or December to January 15 rent.0396

So, there we can go ahead and decrease that and we will go ahead and click on record.0407

And it will show that we have expense for that month in January the previous month rent.0413

That is kind of how we would use any account that is a prepaid type of an item.0419

So, we can go ahead and record it every month and it recognizes the expense in the proper month.0426

So, when we do our financials we know we have rent of $1000 each month not $6000 in one month.0430

We want to expense it out and bring it out to the appropriate period of accounting.0437

I will go ahead and close this prepaid rent account down.0444

Now that we have discussed that we are going to talk about how to set up an asset account and track depreciation.0450

That is another other account, depreciation. I will explain what depreciation is.0458

Depreciation is when we have an asset. The IRS has certain rules.0462

For instance when we have a vehicle that is a large asset that is quite a significant value to it.0469

The IRS does not allow us to expense that cost of that vehicle or that truck.0477

In that particular period of time on our taxes.0482

So what they want us to do is they want us to bring that over several years.0486

A period of time so we can depreciation a portion of that expense over several years not just 1 year.0491

So, it is good and bad. We can set up many, many different assets the we can depreciate.0498

And it is depreciation is all that we have used the cash in one year it helps us in subsequent years.0504

Or non-cash expenses which will reduce our tax liability or our taxable income.0512

So, what we are going to do is we are going to set up a new account about a new trailer.0518

This rock castle construction is purchased for our business.0524

So, we are going to have a new trailer. So we need to set up a new asset.0529

So, in the chart of accounts window we are going to click on account.0533

We will click on new and we are going to choose the fixed assets as a major purchase.0538

It is a trailer for our business. It is a major purchase, a fixed asset.0546

So, we are going to click on continue.0550

This one on fixed asset. I am going to go down here and look at my various numbers to see where we are at.0552

And under vehicles since it is a vehicle number I am going to put in as -- maybe 15.150 is what I will choose.0559

For this particular asset which is a trailer.0570

So, I am going to type in under the account name trailer. OK?0573

Now there is various ways in setting up our assets and depreciation.0581

You might have another method that you are using but what we do is we set up a parent account called trailer.0586

And then we are going to setup subaccounts called the cost of that trailer and the depreciation.0593

As we want to make sure we understand and maintain the original cost of that particular asset.0598

And then we are going to maintain the depreciation of value on that.0605

So, the sum total will be the cost less the depreciation.0609

And it will be the market value or the current value of that particular asset.0615

So, we are going to be tracking that and how that asset depreciates its value over time.0620

So, we are going to click on trailer and we are going to say save and close.0626

And we will notice that there is our trailer and we are going to add a new account.0630

We are going to add subaccounts. We are going to add a cost and we are going to add depreciation.0634

So, we are going to click on account and new and we are going to say it is a fixed asset.0640

It needs to be a subaccount of another fixed asset.0646

So, this one is going to be 15.151 and we are going to name this one cost.0649

This is going to be the cost of the trailer and we will choose a subaccount of the trailer.0659

We will hit save a new from here. OK?0665

The opening balance of the original asset we are going to leave blank for now.0669

We are going to enter that a little bit later of the actual cost of that particular trailer.0673

So, when we purchase fixed assets like this.0679

We usually want to put it a beginning balance. There might be a loan associated.0682

And we are going to go ahead and show you how a loan might be associated with this purchase in the next section of this lesson.0687

We will say save a new at this point and we are going to assign a new one which is going to be our depreciation.0693

So, we are going to say this is number 15152.0707

You will notice here once we set saved on the cost it made it a subaccount.0711

And intended underneath trailer over here in our chart of accounts.0716

So, that means that is associated with the trailer.0720

This one is going to be depreciation and as a subaccount of the trailer.0722

And when we do that and when we hit save and close here.0731

You will notice we will have the trailer, the cost and the depreciation.0735

So, when we put in a value here the sum of these two.0740

The cost less the depreciation will be the current value of that particular asset.0747

We can change the order of the accounts.0754

If we want to have depreciation above we can move them by dragging our little, ups.0756

We can drag our diamonds up above one another and we can choose to move this around if we want it to. OK?0762

Cost or whatever. Depreciation or cost.0774

So, we can move around by dragging those diamonds around any time we want.0777

We are going to go ahead and now show you how to enter the depreciation of the transactions.0782

Each month we might choose to depreciate that asset.0787

Sometimes companies might decide to do it on a quarterly basis or on an annual basis.0792

I recommend doing it on a monthly basis and depreciating that asset on a monthly basis.0797

So that you are recording depreciation expense in the proper periods.0803

Rather than putting in one lump sum in a quarter or one lump sum at the end of the year.0808

There are many different depreciation methods that the IRS allows.0814

Many people just do a straight-line depreciation which means.0818

You take the life of that particular asset over a period of time that the IRS allows 5 to 7 years.0822

Or maybe more in some cases if you have large equipment it might be 10 years or property which is longer.0829

So, you have to check with the IRS code or your tax accountant to find out which method is proper for using your asset.0836

But typically in this example we will just use a straight-line depreciation.0844

And what we will do is we are going to go ahead.0848

And under the chart of accounts we are going to select the depreciation account.0850

And we are going to click on activities menu and we are going to choose use the register.0854

So, we want to use this particular register by clicking on activities and use the register.0862

Here we have got the register opened for this depreciation.0869

We are going to record depreciation for this asset.0874

In the decrease column over here the first thing we want to do is we are going to type in 1300 and hit tab.0878

That it is going to decrease it by $1300 or actually depreciate $1300 for that particular period.0887

In the account field we are going to type in depreciation expense.0897

As we type it in QuickBooks automatically fills in the rest of the force.0902

We can hit tab on that and now we can click record.0906

So, now we have $1300 of depreciation recorded.0911

I am going to close this register window down.0915

And we will see that the value of that trailer is now a negative $1300.0917

Because we have not entered in the actual value of that asset yet.0922

But we will be doing that in just a minute here.0926

So, the next thing what we will do now we have discussed that and setting up that asset tracking depreciation.0930

And now entering depreciation transactions.0938

Now we are going to be talking about working with liability accounts and tracking a loan and long-term liability.0940

So, now we are going to go ahead and work with liability accounts.0947

As I said before when we purchased this trailer we most likely did it on a loan through the bank.0951

There are other current liabilities.0957

Current and other current liability is something that is going to be paid off.0959

Maybe a liability that is only going to last less than 12 months.0964

And long-term liabilities are something that is going to extend beyond 12 months.0968

So, we might have some short term loans.0973

Maybe other current liabilities could be accrued payroll. It could be payroll taxes.0976

It could be credit card accounts or other current liabilities.0983

There are also sales tax liabilities that we have.0987

So, there is various, various liabilities account.0994

Now, QuickBooks sets up other current liabilities accounts for us in the accounts payable, credit card.0998

Accounts that are actually other current liabilities but it already have those pre labels for us.1007

So, we can track those money. So, we owe to our credit cards and other vendors.1012

So, we are going to go ahead now and talk about tracking a loan with a long-term liability account.1017

In regards to this particular trailer that we have purchased.1024

So, the first thing we are going to do is we are going to go ahead and add in the loan for this account.1027

So, under account, chart of accounts. Under account we are going to choose new account.1033

And this is going to be another account type and the one we are going to choose is other long-term liability.1039

So, it is a long-term liability we are planning. Click on continue.1049

Now, of course, in our long-term liabilities I am going to move this over here a little bit.1054

So we can scroll down and look at our long-term liability numbers.1059

We have all these other loans here 23.100, 23.200 you know.1063

So, we are going to do a 23.300 for our trailer.1068

And this is going to be trailer loan.1075

So, we type in the account name trailer loan.1080

And under the account number if we are using account general ledger numbers is 23.300.1082

So, now we have that. We are not going to put in an opening balance just yet.1089

So, our screen should look like this. We are going to click on save and close.1093

QuickBooks will display the long-term liability in our chart of accounts is 23.300.1098

If we reorganize it there it will put it back in new numeric order for us.1106

Now, we are going to go ahead and this is a new loan.1116

We are either receiving money to deposit in our bank account or receiving a new asset.1120

In this example we are going to receive an asset which is the trailer.1124

And now we are going to go ahead and show an increase in that assets cost account.1127

So, we are going to now set that up as the cost.1131

So, in the chart of accounts we are going to go and go up to trailer, to the trailer cost.1134

And we are going to double-click on it or we can go to activities and say use register. It will open up the register.1139

Now, the cost of this particular trailer was $30,000 for this trailer.1145

So, we are going to type in the increased value under the field increase $30,000 and hit tab.1151

And then under the account since it is a loan that we got loan on this.1161

We are going to go ahead and choose the trailer loan.1165

So, we pull that down and we can say trailer.1168

Type in trailer loan and there it is and we can hit tab.1172

Now, we are recording the cost of that particular trailer and we are setting up a loan.1177

So, when we hit record we are going to see now we have $30,000 cost to this trailer now.1185

If we go ahead and close this register window we are going to see the cost is 30,000.1194

We are going to see that the depreciation is 1,300 and what is the value of the trailer now?1201

Now, that we depreciate $1,300?1206

The value is $28,700 and it shows us there.1208

We also, now, we can go down to our trailer loan.1213

And now we have a trailer loan of 30,000 and it records the loan.1217

So, that is how we can record that. So, now we can track in loans.1223

The next thing we are going to talk about now we discussed that we are going to track our fixed assets.1230

We have entered the trailer on our fixed asset item list is what we are going to talk about.1237

And we are going to track those fixed assets using the fixed assets module.1241

And it will allow us to record information about the asset such as purchase date and the price.1245

Whether the asset was new or used till when it was purchased.1252

It is going to give us a little more detail on that particular asset.1256

So, we are going to use the asset module in this scenario here.1258

So, go over here. I am going to close down my chart of accounts.1263

And to get to our fixed asset menu we are going to go through lists.1269

And under lists, the 3rd item down it is our fixed asset item list.1276

We are going to pull that up and we will notice that. Make this a little easier to see here.1280

You will notice that it already has a few assets that we are tracking.1288

So, we can look at many of these other assets. We are going to add one to it which is the trailer.1293

From here we are going to click under the icon item menu and we are going to click on new to add a new item.1299

Displays the new item window and here we can put in the asset name which is trailer.1308

We can put in the purchase description. The item is actually new.1316

But we can put in purchase description now to if we want it. It is a trailer for construction.1321

We can say now that the date of this particular purchase is on 12-15-2015.1337

The cost is 30,000 so we want to put that in there.1347

The vendor that we have bought it from is East Bay shore Auto mall.1351

We will type in that and we will see how our asset is looking.1363

So far we have our $30,000 vehicle that we purchased.1368

Our trailer that we have purchased from East Bay shore Auto mall on 12-15.1371

The asset description is down here. We can say this is a white trailer with company logo. OK?1376

The serial number on this. We are going to put in a serial number of 123456789.1389

And there is a warranty that expires on 12-15-2020.1396

We are going to put that in there properly. Here we go.1403

So, now we have a little bit more information there.1409

Under the asset account we are going to drop this down and we are going to actually choose the trailer cost.1412

So, that is the asset account. We are going to choose the cost of that particular trailer.1420

Not the trailer main but the cost of the trailer.1425

And the new window should kind of look like this so far.1429

And we are going to say that it is OK looking. We are going to click OK on that.1432

And now we have added it to our fixed asset item.1436

So, when we look at it we have that there. There is our cost basis and so forth.1440

So, that is working with and adding fixed asset to your item list and tracking those fixed assets.1455

Next we are going to discuss recording a payment on that loan.1463

Now, that we have a loan with a bank there.1466

We are going to go ahead and show you how when we make that payment.1470

And when we make a payment on a loan we are dealing with principle and interest.1473

Principle reduces the loan amount and the interest is what we pay to the company for the use of their money.1476

So, we are going to go ahead and show you how to record that payment on the loan.1484

And what we are going to do from here is we are going to close down our fixed asset item list.1488

There are a couple of things we want to do.1494

If we are writing a check on our loan we are writing a check for that payment.1496

We can either go directly to write a check from the icon menu or we can go to banking and write checks.1500

And it will go ahead and display us to write checks window.1507

Here we are going to go ahead and make sure that the pay to the order of.1513

We are going to make sure we are using our proper checking account by the way.1517

And the pay to the order is going to be our great statewide bank.1523

So, if I type in great it will automatically pull it in there for us and hit tab.1528

The amount of the payment is $500 but put in 500 and hit tab and it will automatically writes it for me.1534

And under the account tab we are going to type in on the expenses interest.1541

So, interest expense. The interest expense it is only going to be $225 for the interest expense first.1547

And I might type in a memo here saying interest expense, you know, whatever.1556

We can tab through and the next line item is going to be the principle payment against the loan1562

which is going to be the balance of that payment.1567

So, $275 is going to go against that balance and loan.1570

So, if I type in trailer loan or choose it from the drop down menu, trailer loan, this is principle.1575

So, there we have our principle payment there.1589

When we hit save and close I will show you what it looks like now in our chart of accounts.1594

When we look at our loan, trailer loan now instead of being $30,000.1600

And now have the balance of 29,725 this we have recorded the interest.1606

I mean rather the principal payment on that and we have recorded the expense.1612

So, that is how we record our payment on a loan.1617

The next thing we are going to discuss is understanding equity accounts.1623

If you understand what we discussed in earlier lessons about accounting, basic accounting.1627

We have our assets, our liabilities and equity.1634

Our equity of course is derived from our assets less or minus our liabilities.1637

So, what we are left with is equity of that value.1644

So, every time when we set up a business we enter in these assets and their value and there begins to build equity.1651

If we do not have a loan on something and we have donated this particular truck rather than having a loan.1659

Then we would have equity of the balance of that asset.1665

So, if we put in $30,000 then we would have equity of $30,000 on that particular asset.1670

So, we would build that.1679

If you have partnerships many times a company will need to set up equity accounts.1682

That will track each individual partners equity or contribution.1688

Sometimes we might even set up certain accounts that in track equity in more detail fashion.1693

For instance, we might have owners contribution, owners draws.1699

We might have, we will have retained earnings.1703

Retained earnings are the earnings that the company retains at the end of a fiscal year.1705

We might have other accounts, certain partners there.1711

But this partners contributions, this partners contribution, this persons draw.1717

So, we can get as detailed as we want.1722

A lot of times there is this opening balance equity account that QuickBooks uses when we set up our chart of accounts.1724

After we set up all these assets and chart of accounts we need to distinguish.1733

And make sure that this opening balance of equity is divvied up to proper equity accounts.1738

And this should be a zero balance here.1747

It should be either back to the sole owner as equity and we should open up an account.1749

For instance, if this construction company is just owned by myself.1755

I was set up a new chart of accounts under equity and I would call it owners equity.1759

And with this I would make sure that that owners equity is going to have that $44,000 transfer over to the owners equity.1772

And in doing so I would do a journal entry to make sure that it is divvied up.1783

And we will talk about journal entries in a future lesson.1787

But you need to understand that the equity accounts are to track those asset list liabilities.1791

So, again if we look at our accounting equation assets also equals liabilities plus the owners equity.1799

So, we keep that in mind and with that I thank you for using educator.com.1807

We look forward to seeing you again.1813