Balance Sheet Guide for Guitar Repair Shops

The setup most shops get wrong — three problems, one root cause

Recording deposits as income means sales tax becomes your revenue

The most common mistake in repair shop books: recording the Stripe or Wave deposit directly as income. It's fast, it roughly ties out, and it looks fine — until you look more carefully. It creates three separate problems, and the most consequential one has nothing to do with fees.

Problem one: collected sales tax gets booked as your income. If you're collecting sales tax on jobs — which in Florida you likely should be — that tax is embedded in the payment your customer sends. When you record the deposit as income, that sales tax hits your revenue account. It isn't your money. It's the state's money sitting in a liability account until you remit it. Booking it as income overstates your P&L, inflates your equity, and means your remittance math is working from corrupted source data. You may be remitting what you think you owe — but if your books never separated collected tax from earned revenue, you don't actually know what you owe.

Problem two: gross revenue is understated. The deposit that hits your bank is already net of processing fees. Your true revenue — what customers actually paid you — is higher. If you're only recording the deposit, your revenue is understated on every single transaction.

Problem three: fees are invisible. You can't see what you're paying Stripe or Wave, can't track whether it's growing as a percentage of revenue, and can't manage a cost that doesn't exist on your books.

The fix is a clearing account for each processor. Sales tax flows to a liability account. Gross revenue records when the invoice is marked paid. Fees record separately when the deposit hits. Everything is visible, everything reconciles, and the state's money stays separate from yours.

How clearing accounts flow — three common paths

Path A — Square / Stripe (daily batch transfer)

Customer pays at POS: Debit Square Clearing, Credit Sales Revenue + Sales Tax Payable
Transfer hits bank (next day or two): Debit Checking, Credit Square Clearing
Result: Square Clearing zeros out. Money is in checking. Sales Tax Payable has a balance to file.

Path B — PayPal / Venmo (manual transfer)

Customer pays via PayPal: Debit PayPal Clearing, Credit Sales Revenue + Sales Tax Payable
When you initiate transfer to bank: Debit Checking, Credit PayPal Clearing
Key difference: PayPal Clearing may carry a balance if you leave money sitting in PayPal. This is normal — just make sure it's reconciled.

Path C — Cash (immediate)

Customer pays cash: Debit Cash on Hand, Credit Sales Revenue + Sales Tax Payable
When you deposit: Debit Checking, Credit Cash on Hand

Without clearing accounts

Revenue booked when money hits checking

You miss revenue timing. Sales tax isn't tracked until bank deposit. Square balance shows as mystery income. Balance sheet doesn't balance.

With clearing accounts

Revenue booked when earned

Revenue recognized at point of sale. Sales Tax Payable tracks in real time. Clearing accounts reconcile to zero (or match your actual platform balance). Clean.

Assets — what your shop owns

Line item	What it means for a repair shop
Cash / Checking	Money in your business bank account(s). This should match your reconciled bank balance exactly.
Square / Stripe / PayPal / Other Processor Clearing	This is the one most shops are missing. Money paid by customers through each processor that hasn't yet transferred to your bank. Each platform should have its own clearing account. Balance should match what you see in the platform dashboard.
Accounts Receivable	Money customers owe you for completed work not yet paid. Most repair shops collect at pickup, so this may be small or zero.
Inventory	The value of retail items or parts stock you're holding. Only appears if you're actively tracking inventory; many small shops don't.
Equipment (Fixed Assets)	Major tools and equipment — workbenches, spray booths, specialty tools. Listed at cost, then reduced by depreciation over time depending on your tax strategy.
Accumulated Depreciation	A running total of how much your equipment has been depreciated. It's a negative number that reduces the value of your fixed assets.

A note on shop equipment: Most guitar repair tools don't cost enough to depreciate over time — a $200 soldering station is just an expense. The threshold where you typically start tracking something as a fixed asset is around $500–$2,500 depending on your preference and your tax accountant's guidance based on your personal tax strategy. Big items — a spray booth, a CNC router, a Plek station — those belong on the balance sheet as equipment. Your everyday hand tools generally don't.

Liabilities — what your shop owes

Line item	What it means for a repair shop
Accounts Payable	Money you owe vendors for bills you've received but haven't paid yet — open StewMac invoices, etc. Most small shops likely buy everyting on a credit card, so this particular account may be small or zero
Customer Deposits	This is one of the most important liability accounts for a repair shop. Money customers have paid you as a deposit for work not yet completed. You owe them either the work or the money back — it's a liability until the job is done.
Sales Tax Payable	Sales tax you've collected from customers but haven't yet remitted to the Department of Revenue. This is their money, not yours — don't spend it.
Credit Card Payable	Balance owed on business credit cards used for shop expenses.
Loans Payable	Any outstanding business loans — equipment financing, SBA loans, etc.

Equity — what's yours

Line item	What it means
Owner's Equity / Capital	Money you've put into the business (initial investment, capital contributions).
Owner's Draws	Money you've taken out of the business. For a sole prop or single-member LLC, this is how you pay yourself — not as a salary expense, but as a draw that reduces equity.
Retained Earnings	Cumulative net income or loss from all prior periods. This is the business's running score since inception.
Net Income (current period)	Your current year profit or loss, pulled from the P&L. At year-end, this rolls into Retained Earnings.

Things to watch on your balance sheet

Sales Tax Payable balance growing or different than what you've filed — This account should be reduced every month by the payment you make to the Department of Revenue. If Sales Tax Payable on your balance sheet doesn't match your filings, there's a discrepancy in how tax has been recorded.

Clearing accounts not zeroing out — Stripe Clearing should match your Stripe dashboard balance. If it doesn't, a transfer wasn't recorded. This is extremely common in shops that use multiple payment platforms without dedicated clearing accounts per platform.

Negative cash balance — This usually means a reconciliation error, not that you actually have negative money. Worth investigating immediately.

Balance sheet vs. P&L — what each tells you

Question	Look at
Did we make money this month?	P&L (Income Statement)
How much cash do we actually have in the bank?	Balance Sheet (Cash/Checking line)
How much do customers owe us?	Balance Sheet (Accounts Receivable)
How much have we set aside for sales tax?	Balance Sheet (Sales Tax Payable)
How much did we spend on parts this month?	P&L (COGS section)

Read both every month. They tell different stories, and you need both to understand your shop's finances.

The guitar repair shop balance sheet — demystified