Transcription
Hi Kerry here from My Cloud Bookkeeping. I work with small businesses and entrepreneurs to help them keep their books in order and understand their numbers to be able to make better decisions in real time. And the key to being able to make good decisions is having accurate information at your fingertips when you need it. And for that purpose, I created a checklist that you can work through every month in order to ensure everything is up to date and complete before you review your results.
Now, a lot of you have downloaded this checklist already, and I thought it might be helpful to walk through each of the steps so you can understand exactly what it is that needs to be done instead of just looking at it every month and wondering what it all means. So I'm going to be using the sample company and QuickBooks Online. If you're new to my channel, welcome. I use QuickBooks Online exclusively. If you're not using QuickBooks, this is still a useful tool for you. Keep watching if you're interested. And would like to know which QuickBooks Online plan would be best for you, there's a link below in the description that leads to a page. It describes all of the different plans and features. Here's the checklist. If you don't have it, you can download it below or just walk along with the video and grab it later. And before we get started, we want to be sure that we've entered all the transactions for the prior month. Have you sent out all the invoices for any work you've completed or any progress billings that are due?
Now, if you're not the type of business that needs to send invoices to customers, for example, if you have a store where people pay at the time of purchase, or if you have an e-commerce business, you can ignore this step. Do you receive bills or invoices from subcontractors or suppliers? If so, be sure you've entered them all too. Now, we're ready to go. Okay, so to run a balance sheet, we pop over here to reports. And it's typically a favorite. It's, I, I have never opened a QuickBooks Online file where it's not a favorite. So you'd find it here. If not, just scroll down. You can see it's here. And we click through the word balance sheet. And it's going to run a balance sheet by a default date that you will have set up in some of your settings somewhere. Let's not worry too much about that and just pop up here and put last month and run our report. And now we're looking at the balance sheet for last month. And we're ready to start working through the checklist. However, there's something I want to do with you first. So just bear with me. It's going to be a little bit of counting. And I'm not going to go into too much detail. It's just going to help a little bit with understanding why what we're doing is important. And if you watch through right to the end, I'll tie it all together and hopefully it'll all make sense.
So the top section of the balance sheet here, as you can see, are your assets. The things that the business owns, the things that are of value that usually you can measure against something like a bank account, accounts receivable. These are things that actually exist. We'll get into that a little bit more. And down here, we have our liabilities. The things that the business owes, which leads us then down to the bottom section, equity. Now, this is any income you've earned. Typically, it's shares or the owner's contributions are in this equity section. And why a balance sheet is called a balance sheet is because the assets and the liabilities and equity equal each other. And this amount balances. Part of the reason it balances is because of this net income number here. So I'm not going to go into that anymore. I do have an entire video about the balance sheet that I'll put a link to up on the top right here. But for now, just know this is what the balance sheet is. This is what we're looking at. And we're going to proceed on through the checklist.
Now that we have our balance sheet, let's have a look at number two. And that is to have a look at our cash and bank accounts. Now, in this sample company here, you can see there is a checking and a savings account. There's no cash or petty cash. But if you have either a cash register balance or a petty cash tin, does anybody still have those? Any sorts of sort of cash that you're holding? This is a good time to count it and make sure that it agrees to what's sitting here in your balance sheet in QuickBooks. If you have your checking and your savings account, which is a little bit more typical, we're going to go ahead and we'll reconcile those. There are many different ways to get to reconcile. You can pop here from the chart of accounts, sorry, from accounting to reconcile and pop up to the gear icon here, which tends to be where I go. And I don't even know why that is, but it's my favorite. I pop in here to reconcile. You have the option here to select which account you're going to reconcile, either your checking or your savings, and start reconciling. If you want to see when the most recent reconciliation was, you pop up here to the summary. And I guess because it's a sample company, it's not showing us a lot of stuff. But normally, you would see a list here of the reconciliations that have been done to date. So you know where you're up to. It's very important to complete your reconciliations on a regular basis and not just to reconcile to a zero difference. Also, to ensure there were no long outstanding amounts that haven't cleared. And they'll show up as a white bar. And keep an eye on those and keep an on the dates. So check out the bank reconciliation video if you'd like to look at this in more detail.
We can see a number here on our balance sheet for accounts receivable. And this isn't very useful. We don't know what's in it. Doesn't really make any sense. And what you often find with the balance sheet is that clicking through a number doesn't really help you. That's something that's great in the profit and loss, your income statement, but not in the balance sheet. So here's a really cool trick. You can either pop over here to the sales section, do a right click on your mouse and open it in a new tab, or you can pop up and right click here and duplicate the tab. This is just such an amazing time-saving little tip. So we have two balance sheets. We don't need that. I'm going to pop up here, go back to our report list. And normally the accounts receivable aging summary is sitting right here. If it's not, you can scroll down and look for it or just start typing it here. We're going to click in here. And it's come up with today. We're going to change this to last month again. And if we have a look at last month and run the report, we can see who owed us money May 31st. Now, have a look at the total, 5281.52. Here we are in the balance sheet, 5281.52. So this is the breakdown of who owed you money on May 31st. So the good thing I can see in the sample company is that there's nothing outstanding over 60 days. They're obviously very good at their collections. Then you have looked out and just look at who owes you money. My experience is that business owners have a very clear idea of what's still outstanding. If there's anything old, chase it. And don't be afraid to pick up the phone. Nobody picks up the phone anymore, but it's a really effective way to do collections. And please follow up. Make sure you keep an eye on this. It really makes a difference for your cash flow. Another cool little tip is over here to carry current. Hit run report. We're still looking at who owes us money on May 31st. And unfortunately, in the sample company, this hasn't changed. But if somebody had paid you since the 31st date, then it wouldn't show up on this report anymore, which is often really useful if you're doing collections.
Next up on our checklist is inventory. On the balance sheet here, we can see we have an inventory asset, $596. Now, what's important to do is actually go and count your inventory. Depending upon what sort of an inventory system you're using, perhaps you have manage your inventory and Shopify and you can simply run a report. Maybe you have stuff sitting in the warehouse that's not so easy to count. And you might not do it every month, or maybe you've got, you know, some simple shelves of things that you sell that you can do an inventory count on. If it's too much to do it every month, you want to at least do it every quarter. But have a look at this inventory number. I'm going to show you why it's important when we have a look at our income statement. Here we have a section called cost of goods sold, which helps us determine the gross profit. Now, this is a landscape company in the sample company, so obviously the cost of the goods sold is not that important. But if you are buying things and then selling them, you want to make sure that what you've paid for them is less than what you're selling them for. And particularly in times like now where costs are rising so much, if you don't accurately have your inventory number, you won't properly know what the cost of the things you've sold are. So it's very important to keep an eye on this number. There's an inventory adjustment up here if you do need to make changes. And that will obviously have an impact on not just the inventory number here, but the cost of sales as well. This is something I know a lot of people put off, don't do, or just delay until even after year-end. But having a regular process around making sure that that inventory number is correct will make a lot of difference to the information that you have available.
Number five on the checklist is investments. This may not apply to you. If it does, have a look at the value of any investments you hold. And you may want to record an unrealized gain or loss for any significant changes in the value of your holdings.
Number six is prepaid expenses. We don't have any in the sample company. And this is an account that's used when you pay for something in advance, or when you pay for something that relates to a longer period. For example, if you pay your insurance for a year. So let's say you pay $2,000 for your annual insurance in December. You don't want to have an expense for $2,000 showing up in that year. It's going to make it look as though your profit's a lot less than it should be. What you want to do is allocate $2,000 in December, and then we'll put that remaining $22,000 into prepaid expenses. And then each month, you're going to be recording the expense that relates to that month. If you do have this situation, it's a good idea to check that your prepaid balance is going down each month. If it's not, and it's an amount that just got posted by your accountant five years ago and it's still looking there, this could mean that your expenses are too low and your profit too high. And if that's the case, you could be paying too much tax.
Now, before we move on to number six and the checklist, it appears that I didn't address undeposited funds when I prepared that document. And I have no idea why. This is something that often runs a ride for people. Keep an eye on it. I have a whole other video on it. You don't want this number to be ever increasing. And if you ever do want to see what's in here, the quick easy way is to pop up here to new bank deposit. And it should here, let's see, give you a list. It does a list of the amounts that you've received that you haven't yet deposited into the bank. So in theory, we've, we received this money on 12th of May, May 12th. It totals up to the undeposited funds amount. The check is sitting in the drawer waiting for us to go to the bank. Everything's fine. Now, if we had a list here of just old things, pages of it, that's something that needs to be addressed. And it's definitely outside the scope of this video. But undeposited funds are important. And I might have to revise my checklist, perhaps take off investments and put undeposited funds on. But yeah, do be aware that that does need to be watched. Once again, you know, relating back to the income statement, if this is going up higher and higher and higher, your sales could be overstated. Anything could be going wrong. So yeah, keep an eye on that one too.
Now, the next section of the balance sheet, I also haven't put into the checklist because it's typically not something that is fluctuating on a monthly basis. Uh, this particular business only has a truck. Another business might have furniture and fixtures, it might have a pile of computers. But anytime you have a substantial purchase in your business, it's going to go here as your fixed assets. And then each year, your accountant is going to tell you how much they're depreciating or amortizing those assets. And you can enter in an adjusting journal entry. Typically, it's not something you need to be watching on a monthly basis. If that's the case, you've got a much larger organization and probably not watching this video.
Okay, so that's the asset section of the balance sheet covered off. If you have any other items on your balance sheet you're not sure what they might be, you can reach up and make a note in the comments below. I try to get back to people pretty quickly. But I think we've covered off most of the items you would normally see in the asset section of your balance sheet.
Now let's look at the liabilities. First up in the liabilities is accounts payable. Now, similarly to accounts receivable, we don't want to go clicking through this number. I know it's so tempting, but we're going to pop to another tab that we already have open, go to reports, and we're going to run an accounts payable report. I haven't got a clue where it is down there. I just pop up here and I type pay. And you can see the first thing that pops up is the accounts payable aging summary. So I'm going to have a look and see what this report shows that I owed at the end of last month. So we run the report. And you can see here that I owed the insurance company, a body shop, some lumber and materials, PG&E, don't know what that is, and Robertson and Associates. Now, when I look at this, I'm going to know if I still owed those people or not. So this is a, a good place to make sure that you haven't added in expenses that should have been recorded as payments to your vendors. So keep an eye on this one. If you think you've already paid them, then maybe go and check what you've done and how you've recorded it in QuickBooks. Another quick thing to look at is, is there someone here you owe money to that you haven't recorded? So at the very beginning, before we got going, we tried to capture any bills we hadn't received yet. Perhaps we had a subcontractor to do some work for us and we haven't received that bill. If they're not showing up here, follow up on that because you want to be sure to catch the expense in the month it relates to so you can properly see how much money you're making each month.
Now, next up we have credit cards. This particular company only has one credit card. You may have multiple credit cards. It doesn't really make any difference. We just need to reconcile them regularly. So we pop up here, same manner we did with our bank accounts. And instead of the checking, we're going to scroll down to the liabilities section and find out, oh, there's a Visa here that's not got a balance, but anyway, it was the MasterCard we were looking at. You can see there's nothing showing up in here because it's a sample company. But the same thing applies. Make sure when you're doing your reconciliation that you don't just get to zero. You make sure there aren't unreconciled items showing up there.
Okay, now for sales taxes. Another area that can be a little bit tricky. And of course, it varies from jurisdiction to jurisdiction. Be sure you have this section set up correctly. So pop in here, we've got sales taxes. If you're in Canada, you're going to be seeing GST and maybe a provincial sales tax. We can see here the different agencies you're required to report to. If you've been recording sales tax on the transactions correctly, different amounts are going to turn up here. I'm not going to go into this in detail because it's just so varied and there is so much to take into account. But do ensure that these here are filed regularly. Everything looks clean. And check in with your accountant, somebody who knows your local tax laws, if there's anything that looks a little bit weird. There's also another tab here. In the US, it says 1099 filings. In Canada, it's going to say payroll liabilities, depending on where you are in the world and whether or not you're tracking payroll liabilities in QuickBooks. Obviously, in the sample company, there's not a lot going on. But this is another area just to keep an eye on to make sure you're not letting this one go. And probably where you are, I, I think it's pretty universal. If you miss payments on payroll liabilities, the fines can be quite, quite significant. So do keep an eye on this one as well.
And now to look at any other liabilities that we might have showing up on a balance sheet. You can see here we have a loan payable for $4,000 and we have some notes payable for $25,000. If for any of these are from the bank, then you'll have a bank statement you can reconcile to. And I'm just going to check if we can pull up one of these in the reconciliation because sometimes we can. So let's just have a quick look and see if we can. Let's pop down, see if, for example, that loan is here. Notes payable, loan payable, fantastic. So if you do have a statement from your bank, you can go through the reconciliation process right here. If not, you might want to check if you have an amortization schedule. The danger with these types of liabilities is that if you're making payments, particularly if you're grabbing them from the bank feed, what you might be doing is just reducing the amount of the loan for that total payment. And there could be some interest included in there. And if that's the case, your profit's going to be too high. Once again, could be paying too much tax. And it's going to look like you owe less money than you really do. So you're not going to have a clear picture of how much money you owe. And you could also be paying more tax. So keep an eye on any of these loans that would include leases as well. If you've taken out a lease to buy some big equipment, you might want to make sure that the amount you're showing as owing is the actual amount and not a lower amount, and you've missed out on claiming interest as an expense.
So now we're at the last item on the checklist, which is running the profit and loss. And this is probably where a lot of business owners start. But as you can see, we've been able to run through this balance sheet and verify every one of these numbers. And hopefully, as we've gone, I've explained to you what the impact on the income statement or profit and loss could be if these numbers were wrong. So now we know this balances, it's a balance sheet. And we have a net income or a profit to date number of $1,676.46. So we should know that this number now is accurate. If we hadn't gone through this process, there's a very good chance this number would be wrong. So we can run our profit and loss here. And we can scroll down. And you'll see that this number agrees. And now we can be confident that we're looking at an accurate profit and loss. Some things may not have been allocated into the correct categories here. And that's something that you will know as you're looking at the numbers. Hopefully, at least now we know that what we're looking at, the bottom line of, is accurate. You'll be able to look at your total income and then look at your cost of goods sold, if that's relevant for your business. One of my favorite things to do is to split it up by month and have a look across the months and just get a sense of how things fluctuate. You can see down here what have we got? I forgot some. Nothing really here in the sample company works very well like that. But for your business, have a quick look. You might be able to see fluctuating payroll. You might be able to see the rent should look the same. It's going to give you an idea of how things are flowing through your business, how you want your profit loss to look, and hopefully help you to make better decisions and manage your cash flow.
Hopefully, that makes the checklist a little easier to follow. And you can make some great decisions to ensure the success of your business. I've been thinking of conducting a workshop to walk through this in real time so that you can ask your particular questions and delve into some of the items in more detail. And if this is of interest to you, let me know. And if you're watching this video a long time after it was created, check the links. If I did do a workshop, there may be a link to a recording or something. I would love to hear if this was helpful. And if there are any assets or liabilities I didn't include that you have questions about, or if there's something specific that you'd like to know more about, reach out. I could make a video on that. Don't forget to like, subscribe. I'll see you in the next video. Cheers.