cancel
Showing results for 
Search instead for 
Did you mean: 
AC81
Level 2

Balance sheet report asset account balance is inaccurate

I'm having trouble with a balance sheet report as it relates to equity, expenses and checking account balance. I will try to keep it simple.

I have an owner equity accounts for my LLC (two partners) with sub accounts for Contributions and draws. I have listed each partner as a vendor in QB as is suggested on the forums. On Jan 1, I created a journal entry to reconcile my expenses for the year with (negative) retained earnings (Credit to my Retained earnings account because they were negative and debit from my owner draw equity accounts). Everything looks as it should when I look at the equity in my chart of accounts. The confusion comes because now when I run a balance sheet report by vendor (filtered for the owners), the checking account balance in the assets section still contains the amount that was spent on expenses last year. In the liabilities and equity section of the balance sheet, everything shows as it should. The money in those asset accounts has been contributed by the owners, but spent on expenses for various vendors (i.e. attorneys). I suspect this is the source of the mismatch, but it's unclear to me how to handle this?

Solved
Best answer April 06, 2020

Best Answers
Rustler
Level 15

Balance sheet report asset account balance is inaccurate

OK, now I see what you are asking about.

The balance sheet by vendor report you are asking about is as good as it gets in QB. Just for reference there is no "checking account by vendor" at all in QB. Vendor activities are business related, and equity is partner related, they just do not go together on the same report in the way you are asking.

View solution in original post

11 Comments 11
Rejeil_O
QuickBooks Team

Balance sheet report asset account balance is inaccurate

Hi @AC81,


After creating Journal Entries, they are associated with the Retained Earnings and Owner's Equity accounts and do not affect income and expenses.
 

Retained earnings are automatically calculated in QuickBooks Online. 
The profit and loss on your previous period are showing as retained earnings on the balance sheet report.
 

To fix your issue, you'll need to create Journal Entries instead of using Retained earnings and Owner's Equity. you can use the expenses as Credit and Owner's Equity for the Debit column.
 

These steps will help you fix your balance sheet report.
 

You can memorize reports for you to easily look for it in the Custom reports tab.
 

If you still have any concerns, you can leave a comment below. I'm always here to help you fix your issue. Have a wonderful day!

AC81
Level 2

Balance sheet report asset account balance is inaccurate

@Rejeil_O   Thanks for your reply. I have seen stated in the forums over and over again that QB automatically creates a retained earnings entry at year end. I started using QB for my business last year, but this did not happen in my case when 2020 came. I had to create a journal entry manually on 1/1/2020 to zero out my equity accounts. If I delete this journal entry, I don't see retained earnings on my balance sheet.


If I follow your suggestion and leave the retained earnings account out of my journal entry, then I need to create an expense as you stated. Of course, at year end, this is basically a summation of all my expenses for the year (hundreds of entries). My follow up question is how to label this expense? I guess I could call it "Year end balancing" or something to that effect, but then the problem is that this would double my expenses on a P/L report. Is the only solution to create a journal entry every time for every expense that subtracts from owner equity? This somewhat defeats the purpose of linking your bank account because you would have to create a manual transaction every time...which would be extremely time consuming.

Ashley H
QuickBooks Team

Balance sheet report asset account balance is inaccurate

Thanks for your response back, @AC81.

 

Let's see if your books were closed properly since you're not seeing the balance of accounts moved to the retained earnings. The closed date is what moves the balances. This takes place in income and expense accounts. These accounts are called transitional accounts. Let's check the date:

  1. Go to the Gear icon, then Account and Settings.
  2. Navigate to the Advanced tab.
  3. In the Accounting section, press on the Pencil icon to edit.
  4. Check the date.
  5. You can change the closing date. I recommend changing the password to confirm.
  6. Hit Save then Done.

Now let's run a report to see any changes made after you close your books:

  1. Go to Reports on the left-hand menu.
  2. In the search field, enter Exceptions to Closing Date.

I recommend consulting with your accountant about changes made to your books and how to correct any transactions that need attention. They have tools that can help with this process and they can give any advice on how to keep your books organized.

 

If you have further questions or concerns, please don't hesitate and reach back out to me! I'll be here to help.

 

Rustler
Level 15

Balance sheet report asset account balance is inaccurate

On Jan 1, I created a journal entry to reconcile my expenses for the year with (negative) retained earnings (Credit to my Retained earnings account because they were negative and debit from my owner draw equity accounts).

 

Don't try to use the chart of accounts to determine the balances, use the balance sheet that is standard accounting. The chart of accounts presents things strangly. income and expense are never on the balance sheet by the way.

 

If you credit retained earnings, you are increasing the amount. retained earnings is last years net profit/loss.

You do not reconcile expenses with RE.

 

You have a P&L, that P&L shows all income and expenses and the bottom line is net profit/loss which QB transfers to RE automatically.

Then you distribute RE to the partners with journal entries
IF
RE is positive on the balance sheet, debit RE and credit partner equity for their share, same for the other partner
IF
RE is negative on the balance sheet, debit partner equity, and credit RE for their share, same for the other partner

 

then you do journal entries for equity investment and draw per partner
debit partner equity, credit partner draw
debit partner investment, credit equity

 

I prefer this set up for equity, as food for thought

For a company taxed as a sole proprietor (schedule C) or partnership (form 1065), I recommend you have the following for owner/partner equity accounts  (one set for each partner if a partnership)

[name] Equity (do not post to this account it is a summing account)
>> Equity
>> Equity Drawing - you record value you take from the business here
>> Equity Investment - record value you put into the business here

 

 

AC81
Level 2

Balance sheet report asset account balance is inaccurate

@Ashley H  I checked my settings and my fiscal year begins in January. There is no "closing date" listed. I am using QB online plus...not sure if the version has something to do with the issue. Here is a screenshot:

 

account settings screenshot.png


When I go to reports and search for "Exceptions to Closing Date" nothing happens. I presume this is because such report does not exist.

AC81
Level 2

Balance sheet report asset account balance is inaccurate

@Rustler 

I have my Equity accounts set up somewhat like you describe but I only have draw and contribution sub accounts. I understand the P&L shows my net loss for the year. The part that I don't see is where this automatically gets moved to RE at the end of the year. This did not happen, or at least I can't see anywhere that it happened. That's why I made a manual journal entry. If I go to the chart of accounts and click "Run Report" for RE, the only thing I see is my manual journal entry.


I think my terminology was incorrect in my original post...I said "reconcile" expenses with RE, but what I meant was "allocate". In short, all the expenses for the year are not split equally, so some are allocated to one partner and some to ther other. I track this with classes to make it easy for my accountant. At year end, the idea is to draw the appropriate amount from the equity account of each partner to account for all the expenses.

 


IF
RE is negative on the balance sheet, debit partner equity, and credit RE for their share, same for the other partner


This is exactly what I thought I did with my journal entry. When you say "debit partner equity" I did the same thing, but I used the "partner draw" equity account for this to reduce the equity by the amount lost (in this case, equal to the expenses since there was no revenue). All reports are as expected after doing that EXCEPT the value for each partner on the balance sheet of the asset account that was originally contributed to. The asset account only sees income/expenses by vendor so the equity decrease of course doesn't show. This is my conundrum...the equity draw used to pay for the expenses as balanced out by the negative retained earnings, but there is no way to connect the expenses to the proper categories (i.e legal) AND to the owner (vendor) to reduce the amount in the asset account. Deposits give you the privilege of choosing a bank account (income) AND an the owner equity account (equity) and attach it to a vendor. My hope was that the RE, being a special account would also have this ability. Perhaps there is another way, short of making a journal entry for every expense?

Rustler
Level 15

Balance sheet report asset account balance is inaccurate

If you have a partner as part of the business configuration, then in QB for type of company you would choose form 1065.

 

If you have schedule C selected, sole proprietor, that is why you do not see the account retained earnings. Intuit for some idiotic reason decided that retained earnings should be the default equity account for sole proprietors.

 

In the chart of account, find the default equity account, or do this for each equity account. Double click on each one one at a time, if you get a register view all is good, if you get a report - that is really the retained earnings account

 

You do not allocate expense or income to the partners. The partnership makes money. At the end of the year net income is portioned out to each partner per the requirements of the written partnership agreement. It is not done on a job by job event.

 

RE is cleared to equity, not to draw or investment. Draw and investment are also cleared to equity. Draw and investment are there so you can easily have a running total of the partner equity activity during the fiscal year.

AC81
Level 2

Balance sheet report asset account balance is inaccurate

@Rustler 


If you have a partner as part of the business configuration, then in QB for type of company you would choose form 1065.

 

If you have schedule C selected, sole proprietor, that is why you do not see the account retained earnings. Intuit for some idiotic reason decided that retained earnings should be the default equity account for sole proprietors.

 


I do have partnership 1065 selected (see screenshot above).  I see a Retained Equity account in my chart of accounts...the problem is that there was no automatic posting by QB to this account at the end of the year. If click on my retained earnings account, all I see is my manual journal entry from 1/1/2020. All my other equity accounts have a register when I click on them.

 

You do not allocate expense or income to the partners. The partnership makes money. At the end of the year net income is portioned out to each partner per the requirements of the written partnership agreement. It is not done on a job by job event.

 

RE is cleared to equity, not to draw or investment. Draw and investment are also cleared to equity. Draw and investment are there so you can easily have a running total of the partner equity activity during the fiscal year.


 

My manual journal entries on 1/1/2020 "portion" out the losses to each partner. I'm trying to clear out that account to the Equity accounts of each partner (regardless of what they are called). The journal entry gives me the desired result when running a report on Equity, but I don't see a way to clear the value from the asset account (see my detailed description above). Besides deposits, is there another way to affect income/expense AND equity in the same transaction? My manual journal entry in RE can clear to equity only and not the balance by vendor in an asset account.

Rustler
Level 15

Balance sheet report asset account balance is inaccurate

 

Partnership accounting does not work the way you are describing.


Deposits give you the privilege of choosing a bank account (income) - no a bank account is not income, it is where you hold money. The source account is the key, if the money deposited is from a customer, then income is the source account.

 

Money you pay out is an expense (elect., paper, insurance, etc), or an asset you buy (desk, computer, truck, etc)

 

Vendors are just who you buy from, they are not accounts, when you enter a purchase you select the account that matches why you made the purchase. expense or asset.

 

Sorry but I can not help you with partnership accounting based on how you are doing things.

 

AC81
Level 2

Balance sheet report asset account balance is inaccurate

@Rustler 

 

Apologies again. I am a verbal communicator and don't do well translating thoughts to paper. I understand all you have written here and why my previous wording caused confusion and took the focus from my real question. Please disregard my previous comments and I ask that you give me the opportunity to try again with a concrete example (should have done it this way from the start):


My partner and I each contribute $1000 to our business in two separate deposits. For each of those deposits, I choose an account for deposit (checking), the partner as the Vendor (QB suggests to list partners as vendors...please tell me if you disagree), and the equity account associated with the appropriate partner. We then spend $500 on legal fees using a business credit card (listing attorney as a vendor and "legal fees" as a category) and subsequently pay that credit card with the funds in the checking account. Assuming no other activity for the year, QB automatically moves this $500 of "Net Income" to Retained Earnings. It is then up to me to portion this loss to partners according to the operating agreement. For sake of example, it is a 50/50 split. I make a manual journal entry with $500 credited to RE, and debit $250 from each of our equity accounts. The balance sheet report in QB correctly lists my equity as $750, my partner's equity as $750, and the checking account balance as $1500. Up until this point, I think I am doing everything as you suggest and all makes sense. Here is my question/issue:


If I run a balance sheet report by Vendor, QB lists my balance for the checking account as $1000, my partner's balance as $1000, and then there is a non-specified column that shows -$500 (reflecting the payment to the business credit card, which is listed as a transfer from checking to the credit card in QB). There is no way to see an accurate checking account balance by vendor. I understand all funds belong to the business once contributed but for many reasons, I would like to be able to track this. Is it possible or is there a better/more proper way to set things up?

Rustler
Level 15

Balance sheet report asset account balance is inaccurate

OK, now I see what you are asking about.

The balance sheet by vendor report you are asking about is as good as it gets in QB. Just for reference there is no "checking account by vendor" at all in QB. Vendor activities are business related, and equity is partner related, they just do not go together on the same report in the way you are asking.

View solution in original post

Sign in for the best experience
Ask questions, get answers, and join our large community of QuickBooks users.
Sign In / Sign Up

Need to get in touch?

Contact us