Whenever a new accounting system is used, a starting point for all the values needs to be created.  The Beginning Balances are the initial values Procare will use for accounting reports and are comprised of assets, liabilities and equity.

Assets, Liabilities and Equity

The Balance Sheet shows what the business owns (Assets), and who owns those assets (Liabilities and Owner’s Equity).  Without correct beginning balance (sheet) numbers, all subsequent reports would be incorrect.

  • Assets: For a child care business, typical assets would be things such as checking accounts, office equipment, furniture, and accounts receivable.
  • Liabilities: Liabilities are obligations of the business and include things like payroll taxes withheld, long term loans, and utilities due.
  • Equity: Owner’s Equity is the remainder of the equation, which includes any profit (positive number) or loss (negative number) carried into the new year.

The Accounting Equation

The basic equation for small business is:

Assets = Liabilities + Owner’s Equity, or more intuitively: Assets – Liabilities = Owner’s Equity. 

A basic would be a new daycare business with $15,000 in the bank, $5,000 in furniture, a $3,000 furniture loan, and your owner’s equity (line #1).

 Line Assets = Liabilities + Owners Equity
1 20,000 = 3,000 + 17,000

During the year, your business accumulates revenue and expenses, so the expanded equation would be:

Assets = Liabilities + Owner’s Equity + Revenue – Expenses.

Let’s say you charged $30,000 in tuition (line #2 below), collected $25,000 in payments (also line #2), paid $25,000 in salaries (line #3), and had $5,000 still owed in accounts receivable (line #4).

 Line Assets = Liabilities + Owners Equity + Revenue Expense
1 20,000 = 3,000 + 17,000 + 0  – 0
2 25,000 (cash) + 5,000 (accounts receivable) = 3,000 + 17,000 + 30,000  –
3 -25,000 (cash to pay salaries) = 3,000 + $17,000 + 0  – 25,000
4 20,000 (cash) + 5,000 (accounts receivable) = 3,000 + 17,000 + 30,000  – 25,000

The first beginning balance entered into Procare may have any date, but the end of your fiscal year is ideal. The end of your fiscal year will have all expenses and revenue “closed” and posted to Owner’s Equity.  This is what happens when you Calculate Beginning Balances for New Year .

After calculating balances for the new year, the equation would look like this (line #5):

 Line Assets = Liabilities + Owners Equity
5 25,000 = 3,000 + 22,000

In most cases, Revenue and Expenses begin the year at zero.