would you like to have your home finance records reflect a balance sheet that shows an accurate
net worth then you need to watch this video recording unrecorded assets and liabilities
if you have any questions about this topic you can leave them in the comments section below
and i'll do my best to help you and of course if you feel the video helped you i hope you will
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we learned how to record assets and liabilities that were acquired after
we started using quickbooks for our home finance records however the question is how do we record
assets and liabilities that were acquired before we started using quickbooks
well we can make an adjusting journal entry to add these things to our quickbooks records
you only need to do this if you need a balance sheet that reflects your net worth and have that
balance sheet be in your quickbooks records most people leave the schedules of their assets for
depreciation and their long-term liabilities with their accountant and only update those schedules
once a year and you could keep them separate from your quickbooks home finance records
however if you wish to have a balance sheet that's part of your quickbooks records that shows
this information then you need to add any asset or liability that you failed to record
at the moment you started using quickbooks in order to do this you need to make an adjusting
journal entry for each of the assets and each of the liabilities that you wish
to add if you add assets to your records that means quickbooks will reflect that you have
more net worth and we know that in order to increase an asset you would make a debit
and therefore to increase your net worth you would make a credit for example
let's imagine in 2014 joe purchased a car for fifteen thousand dollars and that's what he paid
for it in 2014. he would like to include that in the balance sheet that quickbooks will show
so what will be the result if he adds that to the balance sheet well the car
as a fixed asset will show up for the first time as fifteen thousand and original net worth
which is now zero will become fifteen thousand and its original net worth because this was an
asset that you had physically that you owned before you started using quickbooks so this
fifteen thousand is part of the original net worth so let's take a look at how to record
that journal entry from the main menu click company make general journal entry
now we know we started using quickbooks in june of 2016. so you could really go to june 1 of 2016
the day you started using quickbooks and we have to we know we have to add the car because the
car is not in the chart of accounts but you can add an account on the fly by clicking add new
and this is a fixed asset continue and very simple car save and close and we had a car
that we paid fifteen thousand dollars for and it was part of our original
net worth so our original net worth or the amount we indicate as our original net worth
will increase in our quickbooks records because we're putting the car in our quickbooks records
when we click save and close and save anyway we click the trial balance and we can see we now have
a new asset called car and our original net worth showed up for the first time as fifteen thousand
you can even click reports company and financial balance sheet standard a for all
and now you see you have more of the asset car which means your overall assets increased and
original net worth increased to fifteen thousand dollars now you may say wait a minute i'm worth
more than that i got a really good deal on that car it was an antique worth fifty thousand dollars
so what do you do in a case like that well you're asking why can't i show a balance sheet
that reflects what the asset is really worth well that's an age-old question how do we record the
value of our assets do we record it at historical cost which is me which means what we paid for it
or do we record it at market value which means what we can sell it for and what it's really worth
well let's look at the pros and cons if we use historical cost we can always prove that amount
and the amount will stay the same on your books as the asset sits there and physically is physically
the same all the time and it reflects the original amount that it affected your net worth
when you originally purchased it so we really need historical cost as a basis to value the asset
now if we used market value what would be the problem well first we would need a certified
appraiser to determine and declare the value of the asset and that can be tricky and that's
because the asset value or the value of any asset changes all the time from day to day
so therefore it would be impossible to adjust in our quickbooks records on a daily basis or even a
monthly basis the change of every value to every asset so how do we deal with showing the people
an accurate balance sheet if we paid a certain amount and we have to record that in our books
but the asset is really worth a different amount the way to handle that is to simply put a footnote
at the bottom of the balance sheet explaining what the real value is or let's say the market value is
at the moment that you're displaying the balance sheet and that's how we manage that when we report
our financial information so in this example we will leave it as fifteen thousand
even though it's not worth 15 000 at the moment he includes the car in his quick books records it
must be recorded as 15 000 and a footnote will go on the balance sheet now we will do the liability
again for a liability that you're adding after you started your quickbooks records
you would still make an adjusting journal entry the liability on your books and records will
increase but your net worth will decrease why is that why will your net worth decrease if you add a
liability to your books and records well if assets make your net worth go up when you add assets
and liabilities are the opposite of assets then when liabilities go up net worth goes down
it's that simple for example let's imagine joe went on a three-week vacation back in 2015
that he originally agreed to start paying for in june of 2016 and the amount of the debt
is 2 500 and he never included that in his original quickbooks records
he should have added this debt when he started the quickbooks file but we can add it now anyway
so now he must include it to have an honest balance sheet that will show his true financial
position so what will we do well we know if liabilities are increasing
and net worth is decreasing that in order to increase a liability
we will make a credit because liabilities are normal normally on the credit side and since
net worth is normally on the credit side and we're decreasing net worth we will make a debit
so just follow the steps if you never learn debits and credits just do it the way we show here credit
the liability and debit the net worth and the net worth that we debit will be the original
net worth because this was a debt that was acquired before we started using quickbooks
so this is how we do it we make a journal entry company make general journal entry and again
this is the date that we started using quickbooks and you can use this as the date of the entry
now we have to add a new liability account and if it's if it's expected to be paid back
in a year or so you can put it as other current liability if you expect to take
longer than a year generally speaking the rule of thumb is one year if you're going to pay it off in
more than one year you click long term liability and continue and we can call this vacation loan
and we click save and close now we're going to credit
for the amount that was borrowed and never paid back and the debit lowers the original
net worth because it was something that was not originally included that makes our net worth go
down because we're recording more of a liability we click save and close save anyway
and now when we look at our trial balance we now have this vacation loan for 2500
and our original net worth decreased we can even look at the balance sheet reports
company and financial balance sheet standard excuse me
a for all and now you can see you have a lot you have the uh credit cards that you originally had
and then you also have for long-term liability this vacation loan that gets added to your total
liabilities and your original net worth is now twelve thousand five hundred dollars
you