How To Review Your Balance Sheet at Year (or Period) End

Hello. In today's tutorial we are going to take a look at the balance sheet and how to review it at year end. The balance sheet along with your profit and loss or income statement are the two most important reports for your business. Most people tend to focus on the profit and loss as they want to see their income and expenses for the year. And if you're a very small business, a sole proprietorship perhaps, you don't necessarily need to look at your balance sheet, but if you use accounting software, I highly recommend it. And this is because the balance sheet has important information and contributes to the accuracy of your accounting. And also there's a lot of information for analysis that is available on on the balance sheet. So a little About Me My name is Ronica Kenna. I am a cpa, a CFA and the founder of Montreal Financial where you can find lots of resources for small businesses and sign up to my newsletter to improve your financial knowledge. Okay, let's get started. So first of all you want to go to reports on the left hand side and under standard you will see the balance sheet. So click on that and then you can choose the last fiscal year for the majority of businesses have a December 31st year end. In this case for the Sherlock Holmes Detective Agency, the year end is actually November 30th. This is my balance sheet for the year and the reason I want to choose the last fiscal year is obviously this is the period on which I am reviewing and this can be done monthly, quarterly, whatever period you are looking at. And you would just simply choose the report period from here or enter it directly here and then you always want to click on run report. If you have a upgraded version of QuickBooks, you can also compare it to the previous year. So that is useful to to see how your balances compare to the previous year. Okay, so the layout of the balance sheet is consistent and is the same no matter how small or large your business is. What's included the line items might be a little different, but we always start with the assets and within the assets you have specific categories. You have current assets which is then reflected as cash, accounts, receivable, inventory and then your total current assets and then you have your non current assets which tend to be your larger fixed assets referred to here as property, plant and equipment and then investments and non current assets are essentially long term. In the liabilities and equity section you you have amounts that you owe and this includes your accounts payable in this case which are amounts that you owe to suppliers, your credit card, your sales taxes, GST payable GST Suspense QST payable. Your income taxes payable. This is especially relevant for corporations and your shareholder loan, which is also for corporate corporations. And this is the amount that is owing to the shareholder or shareholders of the corporation. Then you have your total liabilities and these are your current liabilities. Essentially as well, we don't have any long term liabilities, but those would include things like loans payable and other types of long term debt. In your equity section for a corporation you will have three capital stock dividends paid retained earnings, which is the accumulation of all earnings since the inception of your business and the capital stock is how much you pay for the shares of the business, how much the corporation issued four shares. This is usually just a nominal amount and then the profit for the year is just the profit for the the current fiscal year which then gets added to the retained earnings. Then you have your total equity and you have your total liabilities and equity. And this without exception should always equal to your assets. And it is why it is called a balance sheet because your assets are equal to or balance to your liabilities and equity. So let's take a look at this line by line and I'll give you some guidance on how to ensure that each line item is accurate. So the first one is bank and you might have a couple of accounts, the bank account, the savings account, etc. And what's really important, absolutely essential for every business, is to make sure that you reconcile this to your bank bank statements. And to do a bank reconciliation, you would simply go to transactions and click on reconcile. I'm not going to do a bank reconciliation in this tutorial. However, there are dozens of bank reconciliation videos on YouTube that you can take a look at or blog posts. I'll link to one of my own blog posts. And again, it's really important to make sure that this balance as mentioned, agrees to the bank statement. And if it is different, the differences are very specifically identifiable to deposits that have not been made into the bank yet or checks that haven't been cashed, basically what is referred to as outstanding transactions. Everything else should be cleared out or reconciled or investigated. If it is an older transaction that you know has been cashed and is still there for some reason reason, the accounts receivable is essentially the amounts that your customers or clients owe you. In this case we have 55,000 and so what you would want to do in this case is go to your reports, open this in a new tab. So open link in new tab, click here and then you would Want to go to the accounts receivable aging summary. This is also available under who owes you? So you click on that.

And here you would want to go to your last fiscal year run report and then make sure that this total first of all agrees to what's on here. If it doesn't agree, the chances are you have made entries directly to the accounts receivable account that did not go through the sales subledger. So maybe. Generally speaking, the most common reason for the discrepancy is journal entries were entered without a specific customer indicated. So you would go here and then you would look at the details in here. So you look at the balance that each of your customers owes you and make sure that they are still outstanding, they still owe you these amounts. If they don't, then you would want to go and write them off as bad debts or investigate why they would still appear here even though the amounts are not owing by your customers. I do have a video on how to write off bad debts and the best time of year to write them off is at the end of your fiscal year or calendar year year.

Okay, so let's go back to the balance sheet. The next item I have an inventory asset of $1,532. In this case, this was added without going through the inventory subledger. So nothing will show up here. But if you are using inventory in your accounting software in QuickBooks there is a report that you can go to. So let's go back to the report list over here. And then you can simply type in inventory. And the report that I'm interested in would be the inventory valuation summary. And here again you would want to choose the last fiscal year run report. And again, in my case, I am not the Sherlock Holmes Detective Agency is not using inventory. So nothing appears here is here because I'm not going through the inventory system, I'm just adding entries manually. But if you are the total here, it will show you every inventory item and the total will agree to this. If it doesn't, then again you want to investigate what the discrepancies are. In addition, whatever appears here, you want to make sure that it is still valid, you still have it in inventory, the items are not obsolete. And and in case they are obsolete, then you would want to write them off.

In the next one. The property, plant and equipment. You would have whatever you could have, computer, furniture, equipment, etc. And you just want to make sure that the balances look okay and that the depreciation balance agrees to to your tax return.

Investments are similar to the bank balance in that you will almost always be able to get a statement from your investment broker and you want to make sure that the cost amount on the investment statement agrees to the balance. Here. Investments can be a slightly complex area as you have to enter all of the income that you earn from the investments, less any fees that you incurred. And then this total again should agree to the cost because according to generally accepted accounting principles.

With certain exceptions, you do not show the unrealized gains. By an unrealized gain I mean gains that have accrued to a particular investment that you haven't yet sold, so you haven't realized it. An example of that would be perhaps you have some Apple stock and it went up in value but you haven't sold it yet. So it is an unrealized gain. That is essentially what you would do for the assets on the balance sheet with respect to to the liabilities. Let's scroll down now. The accounts payable would be very, very similar to the accounts receivable. You would want to go to the reports. Let's go back to the report list and then we are going to scroll down to what you owe and find the accounts payable aging summary and then make sure that at the last fiscal year this total of 261-6850 agrees to this balance here. And again if it doesn't, you definitely want to investigate it and see why there's a discrepancy. Once you have ensured that the balances agree, then you would want to review each balance in this schedule to make sure that they are in fact still payable. And if they aren't, then you would want to either write them off or determine why they still appear here even though they've actually been paid.

Next, for the credit card, similar to the bank statement, it is essential that you reconcile this to your credit card statements. And so again you would go to the transactions, you would go to reconcile and then choose the credit card that is listed here from the drop down and you might have several and you would want to reconcile each one. And to make sure that the balances agree to the statement, any discrepancies should be investigated. And again you will find lots of videos this on YouTube. We have three sales tax accounts here. The GSTHST Payable, the GSTHST Suspense and QST Payable. So the GSTHST payable is essentially what is owing before you file the return in QuickBooks. And this balance should agree to if you go to the left hand side you will see sales tax. You want to open this in a new tab and then you want to make sure that so my period here is January to December 31st and sometimes there is a difference between your year end and the GSTHST filing period. Regardless in this case what I'm going to do because this is as of 11-3-30. So I am simply going to change this to December 31st run report.

And then look at the balance and make sure that this 258688 agrees to this. Again, if it doesn't agree, you want to investigate your entries to see why it might not agree. And once again, the most common reason for the discrepancy is that a journal entry has been entered without properly reflecting the GSTHST payable. And if anyone has questions about this, let me know in the comments. Okay, so the GST suspense occurs once you go in here and you actually file the sales tax return. And I also have another video on how to file your sales tax return. It gets cleared out of this account and then it moves into the suspense account. The reason I have a negative in the suspense account is from previous filings and the negative reflects the fact that you are owed a refund from Revenue Canada. And so either you receive the refund and you incorrectly allocated it to a different account or you haven't received the refund yet. It's important at the end of the year if this relates to prior periods to make sure that this is either cleared out or is accurate that the balance is still owing to you by Revenue Canada. Income tax payable will be the amounts that you owed and this is really only for corporations that you would have owed in previous years for your income taxes. It could also be a place where you put installment payments for your corporate income taxes and then it would be a negative amount. So again you want to make sure that it is accurate. If you have a balance in this account, either make sure that the balance is still outstanding, it hasn't been paid, or that you have allocated. If you have in fact made a payment that you have allocated the payment to the correct account. QST payable is exactly the same as GST payable. If you go to sales tax, you will see it here.

Because I haven't really filed any QST returns, it doesn't really show up on this. So this works exactly the same way as the GST HST payable. And once you file file the return up here, then it will appear here and it will create a QSD suspense account. The shareholder loan. There's no underlying schedule Per se. You should potentially keep an Excel schedule of all of the amounts that you have contributed to the shareholder loan that you have loaned to the corporation or that the corporation has loaned to you. I have a fairly detailed video on shareholder loans and how to deal with this. But again, this balance should be accurate and you should understand what the components of this balance are. And if this is a negative, you might have to declare dividends based on the balance in this account.

Finally, in equity, your capital stock will pretty much be the same from year to year. As mentioned. This is simply the amount that you paid for the shares of the corporation as the owner shareholder. If you have several shareholders, you will have that here. You might also have preferred shares. This is also referred to as share capital. There's a common stock, there's different names for this, but this essentially again is just very simply the amount that you have paid for the shares of the corporation. Dividends paid means reflects the dividends that have been paid in prior years or potentially the current year. And every year this should be reversed to the retained earnings account. And this should only be the current amount of dividends that you are going to pay. So I will leave a link to my shareholder loan video in the description and you could take a look at that for a more detailed and thorough understanding of how dividends work in relation to the shareholder loan. When you have borrowed money from the company, the retained earnings, again as mentioned, is the accumulation of all of the profit from the inception of the business. It accumulates here. And this is very important because your balance sheet has to balance and that is an essential component in your total business activity. And the profit for the year is simply would generally speaking be part of retained earnings if you had a separate retained earnings statement. But in this case QuickBooks just shows it as a separate line item next year. So you'll see if you take 5,524 plus 136, it agrees to $141,750 $81. So it's simply the total. These will get carried forward to next year as the retained earnings balance. And then you have your total equity and your total liabilities and equity that agree to this.

So this was an overview of your balance sheet. I hope it was helpful. If you have any questions about specific items on your balance sheet, please leave a comment and I will try and answer it. And please like and subscribe. Have a great day.