Same Old Problems Opening Balance Equity

The Opening Balance Equity Account is one of the most commonly misunderstood accounts created by QuickBooks. She must enter a ‘specific’ Inventory Adjustment to reduce the “quantity on hand”. She will use Opening Balance Equity as the Adjustment Account for this adjustment-only. The Inventory Adjustment (for just this item) will credit the Inventory Asset account and debit the Opening Balance Equity Account. Since she is adjusting the quantity posted during the New Item Set-up which wasn’t assigned to any “class” (store location) her adjustment won’t need a class assigned to it. The retained earnings account is for all prior years profit.

In many cases, it does so by using the Opening Balance Account. You have that account because it is an account QuickBooks creates on its own. The account causes some confusion opening balance equity as many people don’t know why it’s there and wonder if it has any use. In your QuickBooks company, you will undoubtedly find an account called Opening Balance Equity.

Click on the video below to watch: How to clean up Opening Balance Equity in QuickBooks Online

Make your balance sheet look more professional and clean by clearing the balance in this account and bringing it to zero. However, it’s common to carry a balance for a considerable period. It is mandatory to pay the due balance each month in order to improve the savings and credit score of your organization.

Failing to close out this account could result in an unprofessional-looking balance sheet and potentially signify an erroneous journal entry in your QuickBooks accounting records. Once all initial account balances have been entered, the balance in the opening balance equity account is moved to the normal equity accounts, such as common stock and retained earnings. From this point forward, it should no longer be possible to access the opening balance equity account, which means that access to the account should be locked down.

What is the Purpose of the Balance Sheet?

Suppose the ‘Wee Lassy’ who handles the QuickBooks for Pirates Mehardy Supply, LLC creates a New Inventory Item called “Swashbucklers Sword” (this is the deluxe Pirates Alley replica model of course). During Item Setup she enters “30” in the Quantity on hand field and $1,500.00 in the Total Value field. This Debits the Inventory Asset account for Pirates Mehardy Supply, and Credits Opening Balance Equity.

QuickBooks automates these offsets for you if you enter balances in the Opening Balance field of the New Account window or if you enter an amount in the Total Value field of the New Inventory Item setup window. A common cause of a residual balance on your opening balance equity account is incorrect bank reconciliation adjustments, which result in an opening balance. When performing a bank reconciliation, make certain that the bank statement balances transaction accounts for uncleared bank checks and other factors. Once you have entered all your company’s opening balances in every account, check what the total amount is. This is the same amount you need to enter into your opening balance equity account so that your QuickBooks company balances on day one. From that point, all you need to do is ensure that your accounts stay balanced.

What causes opening balance equity in QuickBooks?

The opening balance equity account shall thereafter be locked down and shall not be subject to access, unless as provided above. Compare the total opening balance equity to the total beginning equity accounts indicated in the previous account balances once the account entry procedure has been finished for all accounts. The initial account entry was correct if the balances match. Whether not, check the original account balances entry to determine whether a data input mistake occurred.

The initial accounting entry is said to be accurate when the balances match. If they don’t, you’ll have to review them to see where the error occurred. After entering the opening balances in QuickBooks, the balance from the opening balance equity account gets transferred to regular equity accounts like retained earnings and common stock. Following this point, you won’t have access to the opening balance equity account as it gets locked. Once the account entry process is completed for all accounts, compare the total opening balance equity to the sum of all beginning equity accounts listed in the prior account balances.

How to Record an Opening Balance in QuickBooks Desktop?

The best practice is to close opening balance equity accounts off to retained earnings or owner’s equity accounts. A professional bookkeeper will help you ensure your books are up-to-date and accurate. Click here for a free trial of the FreshBooks bookkeeping and accounting services now. If there are errors or discrepancies in the previous accounting period’s financial records, the opening balance equity account can be used to correct them. This ensures that the accounting equation remains balanced and that the financial statements are accurate.