Question

"Setting Up a New Company in QuickBooks" Please respond to the following: Suggest one (1) consequence of improperly classifying an account type (e.g., if an expense is classified as an asset or an asset is classified as an expense). Describe the effect on at least two (2) of the four (4) major financial statements: Profit & Loss (Income) Statement, Statement of Retained Earnings, Balance Sheet, and Statement of Cash Flow.

Answer 1

Start a new QuickBooks Desktop company file from scratch

Open QuickBooks Desktop.

On the No Company Open window, select Create a new company.

Select Express Start or Detailed Start. Express Start. Fill out the necessary information in QuickBooks Setup window.

If we are made improper classification an account in process of setting up a new company then impact of these are below.

Profit and loss-

1. All purchases assets will make an expenses it shown in p&l as expenses.
2. All sale of assets records in p&l and it increase our profit and decrease our exp. (which is assets record as exp.)
3. Our profit or loss gradually increase or decrease because assets are shown in p&l as income and expenses
4. All prepaid exp record as bed debts.

5. Depriciation on assets increase our profits because it decrease our exp. (which is assets records as exp.)

Balance sheet-

1. Liabilities of business is over on the assets (exp records as assets)
2. P&l account loss recover the assets side for differences in assets and liabilities.
3. All paid unpaid exp. Record as assets.
4. All acrude, prepaid, unearned exp shown by changes made in assets.
5. All bad debts, sale and purchase of assets shown by changes made by exp.

Finally conclude if an expenses is classified as an assets or an assets classified as an expenses then business p&l show higher loss , and balance sheet shown unfair condition.