Demystifying Equity on the Balance Sheet

If you've ever looked at your balance sheet and tried to make sense of the Equity Section and couldn't...you aren't alone! Equity is the most confusing part of the balance sheet for most small business owners, but NOT ANYMORE!
In this video, Hannah explains what you will see on a typical small business equity section and what it SHOULD look like. She also goes over some best practices and even shows you how to fix an equity section that has been neglected for years.
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Hannah Smolinski is a #CPA and the Founder of Clara CFO Group. Find out more about Clara CFO Group at claracfo.com/
Disclaimer: This video is intended for educational purposes and
should not be taken as legal or tax advice. You should consult with your financial professionals about your unique financial situation before acting on anything discussed in these videos. Clara CFO Group, LLC is providing educational content to help small business owners become more aware of certain issues and topics, but we cannot give blanket advice to a broad audience.
CODE: 46BMTOM5OTVB3PNK, Q8YP2N761LP14AKS

[@niameanspurpose]

Im doing my own books for my business. cleaning up and doing the last six months..checking my entries etc and LITERALLY hunted for this info all over qbo's website and that opening balance equity was a kicker. also, I wasnt sure how to categorize my draw and the taxes .you explained it very well and provided excellent examples. thank you so much for sharing! I have shared your channel with my sister who runs her own biz and FINALLY is tacking her books with qbo instead of spreadsheets! ❤🦋

[@ClaraCFO]

Love hearing this!!! Thanks so much for sharing!

[@Triniboi05]

Very helpful, even as an accountant myself, i learned some good practice techniques here. Thanks!

[@findingtina7967]

Thank you for this! I am an account and have a bookkeeping company. This is how I do my JE’s to close out the equity section yearly on the balance sheet of my clients. I do this because it just make sense and this is how I would do it on paper. I have asked others a couple of times to see if this was actually correct but got no response. So being able to see that I am actually doing it correctly within Quickbooks really makes me happy. Thank you again!

[@the1da1nc]

Just learned why my balance sheet always looked like a mess in my old business, lol. I never "closed out" the year. About to watch your video on year end bookkeeping. (post a link here maybe?)

[@dailymomentum]

Awesome job 🙌🏽. Needed that

[@ClaraCFO]

Awesome! Thank you!

[@tshephomonamesi2757]

Hi Clara, You mentioned that opening balance could be what the cash at bank that you start with. How do you record the other items you bring to the business. For instance, vehicles, buildings etc. How are they recorded in the equity section? Thank you.

[@user-id3cm6dw5e]

Hi Hannah - Thank you for the video, it was very helpful. Do you know where I can find a list of year-end entries that need to be made for an LLC? I want to build a procedure for handling these annual entries. Thanks!

[@jayphilipwilliams]

Hi, Hannah. I'm hoping you can help me with a couple QBO questions I have (not related to this video specifically). I've enjoyed learning QBO with your videos, by the way. I recently started a business and will be selling my product across the U.S. I understand I will need to charge tax based on the local taxes where I sell the product, so state and local taxes. When I send an invoice with QBO, will it automatically add the appropriate taxes based on the address of the customer on the invoice? Second, will QBO automatically pay those government entities their taxes at some point, or will I need to figure out how to pay them and make payments manually for every state? I appreciate your help! Thanks! Jay

[@ClaraCFO]

Oh boy Jay - you have opened up a whole new world....sales tax! You are right that you may have liabilities to pay in other states. QBO is not equipped currently to be your end-all-be-all partner in sales tax. BUT you need to understand first if you even need to be collecting sales tax. I have a very old series of videos on this, but it's probably time to do some new ones. Here's a list state by state so you can see if you are hitting any of these thresholds: sovos.com/sut/south-dakota-v-wayfair-economic-nexus-threshold-table/

[@user-dh5pi8ml2q]

Can you explain in detail how you do the taxes account. Do you just do a transfer to the tax account?

[@3E8OFx]

Thank you for content I’m going forward in ownership and entrepreneurship. If you have book or great audiobook recommendations to grab I’d like that

[@tatianamarkelova754]

Thanks for sharing your video. Is there an additional accoubt for contributions from owners? Do you close Equity for an S-corp to Capital account rather that Retained Earnings? Thanks.

[@darrellbrantingham2849]

What is Member's Equity? My QB Pro Online Balance Sheet shows Member's Equity, Retained Earnings and Shareholder Distributions. So what is Member's Equite and how does compare or interface with Retained Earnings and Shareholder Distributions?

[@user-hm2sw6by8d]

You are really amazing! thank you very much

[@scotolivera8207]

If I am trying to get the value of my company using any valuation method EBITDAx ..., should owner contribution included in the equity(assets...) section be deducted from the final business value?

[@NIRMAL154]

Can retained earnings become asset for another year?

[@gellerpricebookvideos4159]

Hi Clara I am helping a small company set up QuickBooks. The owner and his inlaws loanded the company money to start the company. I would have thought to add this as a LOAN from officer and a loan from inlaws Your video gives me teh idea what ever moneys and "things" start teh company on day one is not a loan to be paid back. Yes? No? Thanks

[@ClaraCFO]

You can definitely structure this as a loan. It is only equity if the owner does NOT want to be repaid back for the initial investment.

[@faranak-uv8hk]

Great

[@alonzolopez6264]

I am more confused now I thought I was making profit not earnings. HELP

[@ClaraCFO]

Profit that is not taken out in distributions is considered “retained”. Some businesses take out all the profit in the business, but it’s good to retain some of the profit so that you can buy assets and have cash on hand.

[@user-dh5pi8ml2q]

Can you explain in detail how you do the taxes account. Do you just do a transfer to the tax account?