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Assets and Liabilities Made Simple: A Guide for Small Business Owners

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Scale_Assets vs Liabilities

Most business owners spend a lot of time looking at their Profit & Loss Statement—it’s familiar, tracks income and expenses, and speaks the same language you probably use daily. However, another financial report is just as important: the Balance Sheet.

The Balance Sheet can feel less approachable. It uses terms like “assets” and “liabilities,” which might not come up in your regular conversations. But once you get the hang of it, this snapshot of your business’s finances can give you powerful insight into how your business is doing.

Let’s focus on one of the most important things the balance sheet tells you: the difference between assets and liabilities—and why that difference matters.

What Are Assets?

Assets are everything your business owns that has value. Such as tools, resources, and items that help you run your business, generate income, or hold long-term value. Some are physical, others are not—but they all count as part of what your business “has.”

Examples of assets:

  • Cash – Money in your business accounts or on hand
  • Accounts Receivable – Payments owed to you by customers
  • Inventory – Products you plan to sell
  • Equipment and tools – Computers, vehicles, machinery, etc.
  • Property – Buildings or land owned by your business
  • Intangible assets – Things like trademarks, copyrights, and brand value

Assets are usually grouped by how quickly they can be converted into cash:

  • Current Assets – Cash, inventory, receivables—anything you can expect to use or convert within a year
  • Non-Current Assets – Equipment, property, or anything that will last longer than a year

What Are Liabilities?

Liabilities are what your business owes. These are debts or financial obligations—money that needs to be paid to lenders, vendors, or agencies. It’s never fun to think about what your business owes, but having a clear picture of those obligations can help you manage your cash flow.

Examples of liabilities:

  • Loans – Business loans or lines of credit
  • Accounts Payable – Bills you owe to suppliers or service providers
  • Credit Cards – Any outstanding balances
  • Taxes Payable – Amounts owed to tax authorities
  • Payroll Liabilities – Wages or benefits not yet paid

Like assets, liabilities are also grouped by timeframe:

  • Current Liabilities – Payments due within a year
  • Non-Current Liabilities – Debts that extend beyond a year, like long-term loans or leases

Why It Matters

Understanding the difference between what you own (assets) and what you owe (liabilities) helps determine whether your business is on solid ground or heading for trouble.

Here’s why this matters:

  • It shows your business’s stability. You’re in a good position when your assets are greater than your liabilities. That typically means you have enough breathing room to cover your debts and still operate smoothly.
  • It affects your ability to borrow. Banks and lenders consider your assets and liabilities when deciding whether to extend credit.
  • It helps you plan ahead. If liabilities are climbing and assets aren’t keeping pace, that’s a red flag. You may need to adjust spending, pricing, or collection efforts.
  • It tells you your business’s value. When you subtract what you owe from what you own, you’re left with your equity—the part of the business that truly belongs to you.

A Simple Way to Think About It

If you think of your business like a house:

  • Assets are everything inside—cash, furniture, appliances, tools, and the house’s value.
  • Liabilities are the mortgage, credit card bills, and any repairs you still owe money on.

What’s left after subtracting the debts is your equity—which is what you own.

Final Thoughts

The balance sheet might not be your go-to report, but it can tell you a lot about your business’s health—and it starts with understanding what you have vs. what you owe.

Break-Even Point Explained: How to Price for Profit

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Break-Even Point

If you’ve ever wondered, “How much do I need to sell just to cover my bills?”—you’re already thinking about your break-even point.

It’s a simple idea that can change how you run your business. You can price things more confidently when you know exactly how many products or services you need to sell to stop losing money (and start making it).

So, What Is the Break-Even Point?

The break-even point is when your business earns just enough money to cover your expenses.

At that moment, you’re not losing money—but you’re not making a profit yet either. Before you reach break-even, you’re running at a loss.

Once you pass it, every dollar you bring in (beyond expenses) is profit.

Why It’s Worth Knowing

When you know your break-even point, making decisions becomes clearer:

  • You’ll set prices confidently.
  • You’ll know exactly how many products or services to sell each month.
  • You’ll quickly see if a new idea makes financial sense.
  • You can prepare better for slow periods.

No more guessing or worrying because you’ll be working from actual numbers.

Calculating Your Break-Even (Without a Math Headache)

Here’s what you need to gather to make the calculation:

  • Fixed costs are monthly bills no matter how much you sell—rent, salaries, subscriptions.
  • Variable costs can change depending on how much you sell. Think supplies, packaging, or hourly contractor work.
  • Your selling price is what you charge your customers.
  • Your cost per sale is what it costs to make or deliver a sale.

Example: A Coffee Shop

Let’s say you own a neighborhood coffee shop. Each cup of coffee sells for $5. It costs you about $2 to make each cup (beans, milk, cups, etc.).

So, your profit per cup is $3.

Now, let’s say your fixed monthly costs—things like rent, staff pay, and utilities—total $4,000.

Break-even = $4,000 ÷ $3 = about 1,334 cups

That means you need to sell 1,334 cups of coffee a month to cover your costs. Anything above that? That’s where the real profit starts.

How This Helps with Pricing

Let’s say you’re only selling 1,000 cups of coffee a month. That means you’re not hitting your break-even point, and you’re probably losing money.

But now that you know the numbers, you can ask questions like:

  • Should I raise my prices a little?
  • Can I lower my supply costs?
  • Can I increase the number of cups I sell?

You’re not guessing anymore—you’re making decisions with real data.

Keeping Your Costs in Check

This is where knowing the break-even point helps business owners. If your sales dip or your costs creep up, you’ll feel it. But when you’re tracking your break-even regularly, you can spot problems early and adjust.

Common Pitfalls to Avoid

  • Underestimating variable costs: Even small expenses add up, so always track them.
  • Setting prices too low: Knowing your break-even helps prevent pricing yourself out of profit.
  • Not updating regularly: Revisit your break-even point whenever your costs or prices change.

Break-Even Takeaways

  • Your break-even point tells you how many sales you need to not lose money.
  • It helps you price smarter, spend wiser, and make more informed choices.
  • It’s easy to calculate once you know your numbers.

Now that we have removed the mystery of the break-even point and walked you through calculating it, you can take greater control of your ability to be profitable.

And that’s what the break-even point is all about!

How to Set Up a Bookkeeping Cycle in QuickBooks Online

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Do you have a regular schedule you follow with your QuickBooks Online work?

Whether you’re a new QuickBooks Online user or a long-time user, having a regular accounting routine can make you more productive and confident that you’re addressing all of your accounting issues.

What Should You Do Every Day?

Even if you don’t have expenses to enter or invoices to process, it’s a good idea to log into
QuickBooks Online every day. If you’ve connected your online bank and credit cards to the
site (which you absolutely should), there will probably be transactions to go over. So after
you’ve taken a look at your Dashboard (especially your Tasks), hover your mouse over
Transactions in the toolbar and click Bank Transactions.

Click Update in the upper right to make sure you’re seeing the most recent transactions. If
you’re doing this every day, it shouldn’t take long to go over the income and expenses that
have been imported since you last logged in.

You should be looking at newly imported transactions daily and completing the fields
provided as comprehensively as possible.

If you don’t know what Match or Record as transfer mean, we should schedule a session
to go over how those work to avoid duplicate transactions in QuickBooks Online.

Every Week

You need to be monitoring your accounts receivable and payables on a weekly basis – at
minimum. There are two ways to do this. You can:

Run reports

  • Click Reports in the toolbar and scroll down first to Who owes you. Run Accounts receivable aging summary. QuickBooks will display past-due transactions in several columns (Current, 1-30 days, 31-60 days, 61-90 days, and 91 and over). If you’re keeping up with your receivables, you shouldn’t be seeing numbers in most of the columns, unless you’re in a known collections process.
  • Scroll down to What you owe and run Accounts payable aging summary. This works like the aging receivables report. Again, you shouldn’t be seeing much activity here unless you’re in a payment dispute with a vendor.
  • You can also run the Open Invoices report to quickly see the Due date and Open balance entries here. Ditto the Unpaid Bills report.

Consult the All Sales page

Hover your mouse over Sales in the toolbar and click All Sales. The colored bars and
numbers at the top of the page show you the status of your sales. Click the orange bar in
the middle to see a list of overdue invoices. If there are any, you can set a Send
Reminder by clicking the corresponding down arrow in the Action column. While you’re
there, look at estimates and unbilled income and take any action needed.

Every Two Weeks (or more often, depending on product volume) If you sell products and track inventory in QuickBooks Online, you should keep a close eye on your stock to see if you need to:

  • Reorder,
  • Bring in a larger supply because something is selling well, or,
  • Discount or discontinue a product because it’s not selling.

Click Reports in the toolbar and run Product/Service List under Sales and Customers
and look at the Quantity on Hand column.

Every Month

Reconcile your accounts (Transactions | Reconcile)

It’s really important that you reconcile your accounts every month.

No one likes to do this, but it’s way easier to do regular reconciliations than it is to have to
go back several months to track down a problem. If you’ve never done this in QuickBooks
Online, it works similarly to how you used to reconcile your accounts by comparing a bank
statement and your paper checkbook register. Only you’re comparing your bank or credit
card statements to your accounts in QuickBooks Online. Before you start, make sure
you’ve matched and categorized all of your downloaded transactions.

Run a Profit and Loss report for the last month

Click Reports in the toolbar and click Profit and Loss under Business Overview. Did
you make a profit last month?

Every Quarter

If you’re planning to apply for a loan or looking for an investor, or if you just want a deeper
understanding of how your business is doing, consider having us create and analyze
standard financial reports for you, like the Balance Sheet and Statement of Cash Flows.

Lastly, If you ever have trouble categorizing an expense, select Ask My Accountant as the
Category. If we’re meeting with you once a month, we can run a report on these and help
you categorize them correctly.

Give the above a try, review your results, and adjust the schedule as necessary to ensure all your accounting tasks are completed.

A Beginner’s Guide to Understanding the Balance Sheet

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Business owners tend to focus on the Profit and Loss Statement as it shows the income and expenses flowing through their business. Also, the categories (accounts) on the Profit and Loss Statement are terms they tend to use in their day-to-day business dealings.

The Balance Sheet however, uses accounting terms that might not be used on a daily basis and therefore, can be a little intimidating. If that’s how you feel, you’re not alone as We hear regularly from business owners, that they don’t fully understand the balance sheet. This article will breakdown the terms you might find on a balance sheet.

What Is a Balance Sheet?

Think of a balance sheet like a snapshot of your finances. It shows what a business owns (assets), what it owes (liabilities), and what’s left over for the owners (equity). This snapshot helps business owners, investors, and lenders understand how the business is doing financially.

The balance sheet follows a basic formula:

Assets = Liabilities + Equity

This equation is called the accounting equation, and it always stays in balance (hence the name “balance sheet”). Let’s explore each part of the equation.

Assets: What the Business Owns

Assets are all the things a business owns that have value. These can be physical items (tangible) or things that aren’t tangible (items that aren’t physical but have value). Here are some examples:

Tangible:

  • Cash: Money in the bank or on hand.
  • Accounts Receivable: Money customers owe the business.
  • Inventory: Products the business plans to sell.
  • Equipment: Tools, machinery, or computers used in the business.
  • Property: Land or buildings owned by the business.

Intangible:

  • Intellectual property: Patents, trademarks, copyrights.
  • Goodwill: Value from customer loyalty, public reputation.
  • Brand recognition: Logos, taglines, etc.

Assets are usually divided into two categories:

  • Current Assets: Items the business can turn into cash quickly, usually within a year (like cash or inventory).
  • Non-Current Assets: Items the business plans to use longer than a year (like equipment or property).

Liabilities: What the Business Owes

Liabilities are debts or obligations—money the business owes to others. Here are some common examples:

  • Loans: Money borrowed from a bank or other lender.
  • Accounts Payable: Money owed to suppliers or vendors.
  • Taxes Payable: Taxes the business owes to a government agency.

Like assets, liabilities are divided into two categories:

  • Current Liabilities: Debts that must be paid within a year (like short-term loans or bills).
  • Non-Current Liabilities: Debts that are due over a longer period (like a mortgage).

Equity: What’s Left Over

Equity is the owner’s share of the business. It’s what’s left when you subtract liabilities from assets. In other words:

Equity = Assets – Liabilities

If a business sold everything it owns and paid off all its debts, the remaining money would be the owner’s equity. Examples include:

  • Owner’s Contributions: Money the owner(s) has invested in the business.
  • Retained Earnings: Profits the business has kept rather than paying out to the owner(s).

Why Is the Balance Sheet Important?

A balance sheet is like a report card for your business. It helps answer important questions, such as:

  • Is the business financially healthy? Comparing assets and liabilities can show whether the business has enough resources to cover its debts.
  • How much is the business worth? Equity gives an idea of the business’s value to its owners.
  • Are there any red flags? For example, too much debt compared to assets could signal trouble.

The balance sheet report provides a snapshot of what your business owns (assets), owes (liabilities), and its overall value (equity). We recommend reviewing your balance sheet regularly to monitor the financial health of your business.

Simplify Bills & Payments: QuickBooks Desktop Vendor Center

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Keeping track of bills and payments can be overwhelming, especially if you’re juggling multiple vendors. QuickBooks Desktop offers the Vendor Center as a single, convenient location to organize everything you owe—and what you’ve already paid. This feature not only streamlines your records but also gives you a clear view of your business finances. Below, we’ll explore how the Vendor Center works and why it’s a must-use tool for staying organized.

What Is the Vendor Center?

The Vendor Center in QuickBooks Desktop is a central hub that contains all the information you need about the people and companies you pay. Think of it like an address book for your business finances. Instead of juggling separate spreadsheets, files, and folders, you can manage all your vendor details in one easy-to-access place. When you open the Vendor Center, you’ll see a list of everyone you pay for goods or services, along with options to view bills, payments, and purchase orders.

Why It Matters for Staying Organized

  • Everything in One Place – The biggest advantage is convenience. By storing contact information, bill details, and payment records in the same location, you cut down on time spent searching for paperwork or scrolling through separate files.
  • Reduces Errors – When all your transactions are recorded in one system, you’re less likely to make mistakes such as double-paying an invoice or missing a due date. This reduces late fees and vendor disputes.
  • Clear Payment History – QuickBooks Desktop automatically connects your payments to the correct bills, so you can quickly see whether an invoice is paid, partly paid, or overdue. This can help you maintain good relationships with your vendors by staying on top of payments.
  • Better Insights – By checking out the Vendor Center, you can see how much you owe and to whom. This information can be used to plan future expenses, budget more accurately, and stay alert to any significant changes in your cash flow.

Step-by-Step: Using the Vendor Center to Track Bills and Payments

Open the Vendor Center – Start by selecting Vendors on the top menu bar in QuickBooks Desktop, then click Vendor Center. You’ll be taken to a screen that shows all your existing vendors in a list.

The Vendor Center is located under the Vendor menu

Add New Vendors – If you’re adding someone for the first time, select New Vendor at the top of the Vendor Center. Include the vendor’s name, contact details, and any other relevant information. This helps keep accurate records from the start.

There are 5 tabs for entering vendor information

Record Bills – When you receive an invoice or bill, record it in QuickBooks by selecting Enter Bills from the Vendors menu. Choose the correct vendor from your list, and make sure to fill in key details like the amount, due date, and any notes you need for reference.

Highlight the vendor then click Enter Bills

Pay Bills – To mark a bill as paid, go to Pay Bills in the Vendors menu. You’ll see a list of open bills, and you can select the ones you’re ready to pay. QuickBooks will automatically tie that payment to the vendor’s bill in the Vendor Center, keeping your records up to date.

You’ll see a list of open bills, and you can select the ones you’re ready to pay. QuickBooks will automatically tie that payment to the vendor’s bill in the Vendor Center, keeping your records up to date.

Review Vendor History – After you’ve entered bills and recorded payments, you can see each vendor’s outstanding and paid bills by clicking their name in the Vendor Center. This gives you a clear snapshot of your payment history with that particular vendor.

Highlight a vendor to see their activity. You can sort the activity by date and transaction types.

Tips for Getting the Most Out of the Vendor Center

  • Set Reminders: Take advantage of QuickBooks Desktop’s reminder features to alert you when payments are due. This ensures you never miss a deadline.
  • Use Notes: Each vendor record has a space for notes. Use this section to log special details like contract agreements or important reminders.
  • Keep Info Updated: Make sure your vendor details—addresses, phone numbers, and other key information—are always up to date. This saves time and helps avoid confusion.
  • Run Vendor Reports: QuickBooks Desktop offers standard reports that show details like open bills or recent payments. Checking these reports regularly helps you stay on top of any changes in your payables.

By entering bills promptly, marking payments accurately, and reviewing vendor histories, you’ll gain a clear view of your vendor accounts—helping you avoid mistakes and late fees while making better decisions about your spending. The Vendor Center is a handy tool for keeping all vendor activity organized and easy to manage.

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