How Bills and Expenses Impact The Profit and Loss and Balance Sheet in QBO

Hello.

Today we are going to continue on our accounting lessons for beginners. In our first lesson we looked at how to create an invoice and pay an invoice and how that impacts the profit and loss and the balance sheet. Today in our second lesson we will look at how to enter bills, how to pay that bill and how to enter expenses. And then once again we will review the balance sheet and the profit and loss to see the impact. So let us begin. First of all, to enter a bill we go to the plus new on the left hand side. Keep in mind a couple of things. In QuickBooks there's always more than one way to do most things. So you can click on +new and you can also go to expenses and bills and add a new bill from there or from the supplier. So whatever your preferred method is, you can use that. So I like to click on +new. I am going to click on bill. One other thing to keep in mind is is that the easy start version of QuickBooks does not have a bill option. So if you're using that, you will not be able to enter bills. This isn't necessary for all businesses. If you don't have a lot of transactions with suppliers, then you don't necessarily need this function. It is still useful to know as we are reviewing reports.

However, if you do have frequent transactions with suppliers, you receive bills from them and they give you terms. That is you can pay them in 15 days or 30 days. Then it is useful to enter bills, to monitor your cash flow and to see what is due. So let's go ahead and enter a bill.

We are going to add a new supplier and we can do it directly from here. I am going to call the supplier, Mrs. Hudson who is Sherlock Holmes landlady and rents him his office. So let's Click on Save. Mrs. Hudson will appear. You can also enter all of the other details by going to the supplier section on the left hand side.

We'll maintain the bill date as of today. Due date. Her bill number which she will present to you as an invoice should be listed on her bill. We will just call it October 2023 because she just names her invoices by month. And this is the rent for October. In terms of the category we are going to choose rent expense because that's what it is. And Sherlock Holmes pays a whopping $250 per month to Mrs. Hudson for the privilege of having an office in her building. We'll leave sales tax out for now. That is something we will talk about at a later date and then let us go ahead and save and closes.

We're also going to enter an expense. And from the perspective of your reports, whether you enter a transaction as a bill or an expense, it will have the exact same impact. Assuming you are choosing an expense as the category. So let's click on expense.

The difference between a bill and expense is that a bill is a transaction that you enter and that you pay at a later period date. So there are two parts to the transaction. An expense is something that you incur immediately. So for example, transactions on your credit card are immediately taken from your credit card. Or if you were to pay something directly from your bank by debit, it would be taken directly from your bank account at the same time that you incur the transaction. So let's see, let's assume that you paid.

Best Buy.

To buy some office supplies.

So make sure the payment account is correct. Not sure why this shows up, but we're going to choose our checking. In fact, we're going to choose our credit card account.

So the payment date. We bought some office supplies today. The payment method reference number, you can put it for whatever the receipt says. You can enter this, it's not really necessary your payment method, you can select credit card. And then the category is going to be office expenses. And specifically we bought some paper for the printer. So we put in paper as a description and we're going to put in $25. This is going to be exempt of tax.

In addition to our office expenses, we we also bought some accessories for the surveillance equipment that Sherlock Holmes uses. So I'm just going to select supplies and put accessories. So you'll note here you can actually have two different categories on one transaction, assuming it is with the same supplier. So this say was $42 exempt and we paid a total of $67 to Best Buy. So let's save and close this. Now let's go to our reports and see the impact of these transactions. So let's first go to the profit and loss statement.

And we are going to select this year run report and we'll see that we have expenses. We have the rent expense to Mrs. Hudson and the office and supplies to Best Buy in addition to the $500 of sales to Moriarty that we did in the last lesson. So after we did the expenses from the sales, we have a net profit of $183 so far this year. Now let's go to our balance sheet.

If we click on our balance sheet, let's choose the date which is this year. Click on run report. And here we'll see that our bank did not change. We did not pay anything from our bank account nor did we receive any money into it. The accounts payable now is higher by $250 because we set up a bill. And when you set up a bill that you are going to pay at a later date, it creates an accounts payable, an amount payable to a supplier.

It also created another liability of $67 on the credit card because this is something that we are going to pay once the credit card bill becomes due.

And finally you'll see the profit for the year is reflected here of $183. And now our total assets match our total liabilities. It is a balance sheet, so it is always going to balance.

To see our actual accounts payable by supplier, there is a report called the Accounts payable Aging Summary. And if you go to your standard reports and scroll down you will find that under what you owe, click on and the other thing that you can do is you can also enter this by the name of the report and it'll quickly find it for you. So let's click on the accounts payable aging summary. And here you will see that you owe Mrs. Hudson $250.

And it's super handy when you have to decide whom to pay and how much to pay and on what dates.

Now let's pay the bill and see how it impacts the balance sheet. So if we go to expenses and we go to bills.

You can see there are three sections here for review. Unpaid and paid. Let's click on unpaid. So in the unpaid you'll see that the bill for Mrs. Hudson appears. Let's click on that. And then right next to it there is an option to make payment. So let's click on that.

We are going to make the payment today because we're very prompt and we are going to make sure that it comes out of the bank account because we are issuing a check for $250.

And you can put in a reference number, you can put in the check number, let's say it's 521. There's a way to print checks within QuickBooks online or you can simply write it out and then once this has been paid, check the amount is $250. This amount is what will be taken out of the bank account and this bill will be fully paid, save and close.

Now when we go back to expenses and bills, you'll see there is nothing under unpaid and underpaid will have the bill that we just paid. Now similar to last time when you pay a bill there is no impact on the profit and loss statement and this is because the expense was already incurred. All we are doing is simply making a payment which means we are transferring.

Amount from the bank account to the accounts payable. So let's look at our balance sheet.

We are going to click on this here run report and you'll see that our bank account is less by $250 and the accounts payable. The amount that we owe to the supplier is go.

And now our total assets are $250 and our total liabilities and equity are $250. So that concludes this lesson on paying bills, entering expenses and how they impact your financial reports.

In our next lesson we are going to look at at fixed assets and contributing funds to your business, how to enter them and how they impact your reports. I hope this was helpful. Please like and subscribe and if you have any requests for videos please leave them in the comments and I will try and make them. Have a great day.