How to Invoice in QBO & Impact on Profit-Loss & Balance Sheet

Hello, everyone.

So I would like us to do a very simple accounting lesson using QuickBooks Online. So you can see how your transactions impact everything as it works its way through the system, all the way from entering the transaction to to the reports. So to that end, let us begin. So the first thing that we are going to do is we are going to create an invoice. So let's go to invoices.

And we'll click on Create Invoice.

And from here you can select a customer. I already have Moriarty Inc. As a customer. You can enter all of this other information. Let's just keep the invoice date as of today. The invoice number is automatically assigned. And for the product or service, we are just simply going to select sales. For now.

Let'S make our sale to Moriarty $500.

And we're going to call it Consulting Services.

And for now, we are not going to add any tax. I want to keep this as simple as possible.

So let's save and close this.

So now we have our first transaction, just one transaction, but we're going to take a look at how it impacts all of the reporting in QuickBooks Online. So what you have is a sale. And a sale is reflected on the profit and loss as an income item and it is also reflected on the balance sheet as an accounts receivable because you have not yet been paid. So let's go and take a look at our reports.

So first let's go to the profit and loss statement.

And if we choose all dates for now run report, you'll see we simply have a sale. And if this is all we had, then we would have profit of $500.

So now let's go to our balance sheet.

And when you look on your balance sheet.

Again, we will select all dates. You'll see that you have an accounts receivable of $500. We know that this is from Moriarty Inc. But I will also show you the report where you can verify how much your customers owe you. And then in addition to that, the balance sheet shows the profit for the year which comes from the profit on the profit and loss statement. And this is because the fundamental principle of accounting is, is something referred to as double entry bookkeeping, which means for every debit there is an equal credit, at least one there can be multiple as long as the debits and the credits match. And because of this fundamental principle, your balance sheet will always balance. And we are going to build on this over the coming lessons where I will show you how each transaction impacts the reports. The final report to look at in this case would be the Accounts Receivable Aging report. And I want you to note that I open these in separate tabs so that I can toggle between the reports. And I simply did this by by right clicking on Reports and open link in new tab. So let's click on the Accounts Receivable Aging summary and you will see here that Moriarty Inc. Appears as an amount receivable as of today's date, which is the date on which we entered the transaction. This will disappear once we receive a payment from Moriarty Inc. So let's go ahead and do that. So if we go to Sales, we can go to the overview.

And you could go to all sales and you'll see you can receive payment directly here or you can go to the customers.

And you can go just click on Moriarty and you can receive payment here. So let's go ahead and receive payment. Payment.

So he is going to pay us the full amount today. He is very prompt with his payments. We are going to deposit this to a bank account which we will create right now in QuickBooks Online. And you can create this directly within the system. The detail type checking account. And we'll leave it simply as a bank account. This is an addition to your chart of accounts. We'll leave all the other information blank for now, but we will come back to it in a later lesson. So let's save and close.

And the deposit will go to the bank account. The amount received is the full amount of the invoice.

Then we are simply going to save and close this invoice. Now let's go and look at our reports again. So here we have our reports already open. There is no change to your profit and loss because you have simply received a payment on an asset. So this remains the same. It does not affect your you have not sold anything, nor have you incurred any expenses. The profit and loss is for your sales and for your expenses. If we go to your balance sheet, we'll actually see that there is a change. Your bank account now has $500 because you've received $500 in a check or cash from Moriarty and your accounts receivable is down to zero because he has paid the amount that he owes and therefore no longer owes you any money. Nothing else has changed. The profit for the year still continues to be $500. And the only thing that has changed and another way to look at it is the accounts receivable asset has basically been changed, transferred to the bank account and if we go to the customer, if we go to the reports, and if we go to the AR Aging Summary report, you will see that this no longer appears. So that concludes a very simple accounting lesson. In our next lesson we will add an expense to see how that impacts your accounting. Thanks for watching.

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