The How-To Guide for Balance Sheets and Profit & Loss from QuickBooks (Part1)

July 20, 2015

The Balance Sheet (BS) and Profit & Loss reports (P&L) are two of the most used reports that make up your Financial Statements (FS). But you shouldn’t be producing these reports only for your banker when you want a loan or for your CPA at tax time. balance sheets and profit & loss reports

You should be utilizing your Financial Statements as management tools in running your business.  

QuickBooks is an accounting software package capable of producing numerous management reports. Don’t simply use QuickBooks as a bank register—use its many report options to assist you in growing your business.

Before you create reports

Before we get to the actual reports, let’s back up a bit.  One of the most crucial steps in using QuickBooks is to correctly set it up from the start. Some people who indicate they “know” QB may understand how to enter ongoing transactions, but may not possess the skills to correctly set up the accounting software.  

There are many steps in completing a successful setup.  Let’s focus on some of the steps that lead to the creation of the Balance Sheets and Profit & Loss.  

The Chart of Accounts (COA) setup is the backbone for your Financial Statements.  I strongly suggest you have a qualified person to create your COA. If your COA is already set up you may want someone to review it. 

Based on the proper accounting required for your business both for management purposes and for income tax preparation, your COA should be handled by someone knowledgeable in both accounting and QB. Your CPA, if they are trained in QB, or a QB Certified Pro Advisor would be a good place to turn for your initial COA setup or review.

Your COA is your list of “buckets” (accounts), that you choose from when entering a transaction and assigning accounts.  If you also use the Items feature in QB, such as for invoicing, then you must map the Item to the correct account. Assigning accounts to Items is a required step when setting up your Item List.

When you add an account to you COA list, you will be asked what “Type” the account will be.  The “Type” choice is very important.  This choice tells QB whether to take the transactions coded to that account to the BS or to the P&L. 

If your BS or P&L do not make sense to you, it may be because the setup of the account type is not correct.  Miscoding of transactions and incorrect mapping of Items may also lead to errors in your BS and P&L.

Reconcile your accounts

Once your COA is accurate, you need to have entered all of the transactions for the period you want to report on.  You also need to reconcile all bank accounts and credit card accounts using the QB reconciliation function through the ending date of the time period you want to report.  

An often overlooked step in the bank or credit card reconciliation process that can cause incorrect reports is failing to analyze and correct any outstanding transactions on your reconciliations that are not legitimate. 

It is important for you to understand what transactions are outstanding and why.  If you have erroneous outstanding transactions they will cause your QB bank or credit card balances to be incorrect and your P&L may be understated or overstated.

Next Steps

In the coming articles, we will discuss the logistics of creating the Balance Sheet and the Profit & Loss reports.  Spend the next month or so applying the above information so when you are ready to create your reports, they will be correct and useful.

Other Articles in the How-To Guide for Quickbooks Series

 cash management ebook

Topics: Accounting & Finance

Margie Monroe

Margie Monroe, CPA, LLC

Margie has been a CPA since 1980 and has always enjoyed assisting people. Whether it was her early years in both public and private accounting or her twenty plus years working with nonprofit organizations. For the last ten years, she has assisted businesses and individuals with their accounting needs using QuickBooks Pro, Premier, Enterprise, POS and Online through Margie Monroe, CPA, LLC. She can be reached at
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