What is Opening Balance Equity and How to Fix It?

When entering account balances into the QuickBooks software, the offsetting entry is called opening balance equity. When setting up an account in QuickBooks, it is necessary to create an account for any previous account balances. In order to keep the books always in balance, it is utilised to offer an offset to the other accounts. Compare the total opening balance equity to the total beginning equity accounts indicated in the prior account balances once the account entry process is complete for all accounts. The first account entry was accurate if the balances are identical. If not, check to determine if a data entry error occurred when entering the initial account balances. In this particular guide, we will cover what is exactly is opening balance equity, why it exists, and how to Enter, Clear, and Close Opening Balance Equity in QuickBooks.

What exactly is Opening Balance Equity in QuickBooks?

Opening Balance Equity is a special QuickBooks account in the equity section of the Balance Sheet. The most common reason for a balance in the Opening Balance Equity account is the result of a bank reconciliation that was not balanced to zero prior to completion. The process of entering the ending balance, marking the items that have cleared the bank, and reconciling the difference to zero is the correct procedure.

Once the account is reconciled back to zero, it is recommended that the account be marked as inactive.

Pointers needs to taken into consideration

1. Before inputting the opening balance, it is recommended that you always get in touch with an accounting expert. You can click the link that asks “Should I enter an opening balance?” or use the F1 key while setting up the account. You can find out information regarding the opening balances in this way.

2. Additionally, if you don't have a balance before the QuickBooks start date, you cannot input the opening balance.

3. The Opening Balances may be entered using one or more GJE that you may have prepared from the Balance Sheet for the prior fiscal year. This is possible if you launch a new company with a date that is later than the actual one. If you are utilising journal entries to record the opening balances, keep the following things in mind:

a. For the offset account, use the Opening Balance Equity account to maintain the balance of the journal entries.

b. Instead of entering each revenue, expense, and cost of goods sold, you can enter the amount for the prior year's retained earnings when you enter balances from the beginning of the year.

c. There is a limit of one accounts payable or receivable transaction per journal entry. In order to load the balances for these accounts, you must have numerous journal entries.

d. In the names column of the journal entries for the accounts payable, sales tax due, and receivable, don't forget to include the vendor's or customer's name.

e. You can choose to alter both inventory quantity and value by using the Inventory Adjustment screen rather than inputting the Inventory Asset Balance through a journal entry.

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Important Note:

1. You would begin keeping track of your financial transactions in QuickBooks within the time period indicated by the dates you specified for the beginning of your business.

2. When you enter an opening balance for the first time in a balance sheet account, QuickBooks automatically creates it. Additionally, when you enter opening balances, Opening balance Equity is recorded by QuickBooks. By doing this, you can be confident that your company will have a strong balance sheet.

3. These are the profits that the company's owners have not yet shared. When your fiscal year is through, QuickBooks also figures out your profit or loss. Retained Earnings is the equity that receives this.

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How to Enter Opening Balance in QuickBooks?

Bank or credit card accounts

 Initially, select the “Chart of Accounts” tab from the Company menu

 Do a right-click in this window and choose “New”

 Then decide between a bank account and a credit card

 On the appeared screen for “Add New Account”

 Complete all the necessary fields

 Press the Enter Opening Balance button

 Only if you haven't entered a transaction yet will this button be accessible

 The button will become the Change Opening Balance button as soon as you enter a transaction

 Enter the ending date and ending balance from your most recent bank or credit card statement

 After that, click on the Ok button

 Finally, select the “Save & Close” option from the menu.

You must account for all pending credit card or bank transactions in order to ensure the accuracy of all future reconciliation.

Perform the below steps after entering the opening balances in QuickBooks

 If there are any outstanding checks, add them to the ending balance on the bank statement; if there are any outstanding deposits, decrease them.

 Enter the journal entry debiting the bank account or credit card and crediting the opening balance equity

 Choose the “Make General Journal Entries” option from the Company menu

 Set the date and make a few journal entries

 Next, select the bank or credit card account from the Account column, and then enter the sum you computed in step 2 in the Debit column

 Click Account in the following line, then select "Opening Balance Equity" from the drop-down menu

 After that, put the determined amount in the credit field

 Use Opening Balance Equity to create checks and deposits, then enter all of the outstanding transactions

 There won't be any changes to the prior balance sheet as a result of this becoming available for reconciliation

 Now use the small reconciliation method to match up the opening balance journal entry for each account.

Other Balance Sheet Accounts

Be careful when entering an opening balance for equity, fixed assets, other assets, current assets, and other current liabilities as you run the risk of making a duplicate accounting entry. Accounts Receivable and Payable are viewed differently in QuickBooks.

Through the Chart of Accounts:

 To access the Chart of Accounts, select the same option from the company menu

 To open a new window in the Chart of Accounts window, perform a right-click anywhere on the shown window

 Select the proper Account Type

 When you're on the Add New Account page:

 Complete the necessary information

 After that, hit the “Enter Opening Balanace” tab

 The opening balance amount and the date must be entered in your next step

 Use a date that is earlier than the start date of QuickBooks

 Now, hit the Ok button

 After saving, click on the “Save & Close” button.

Using a Journal Entry:

 Make general journal entries by selecting it from the Company menu

 Set the date and add the necessary number for the journal entry

 Choose the account you want to enter from the Account column

 The accounts can also be entered in the order they appear on the trial balance or balance sheet

 Depending on the kind of account, enter a positive value for the account balance in the right column as well

 For example:

 For Asset accounts, positive balances will show up in the Debit column

 These positive balances are shown in the Credit column for Liability and Equity

 After that, you have to repeat the steps 3 and 4 for each account

 Make that the sum in the Debit and Credit columns is equal after all the balances have been entered

 To examine any discrepancy between the two columns, you can use the Opening Balance Equity as the offset

 Now, hit the save and close button

 Create new journal entries to record the balance for sales tax payable, accounts payable, and receivables. Any other account that is not mentioned in the first journal entry may also be entered

 Finally, make a journal entry to allocate any remaining balance in the opening balance equity account among the other retained profits and equity accounts as desired.

Through the Register:

You must enter the opening balance in the account register whenever there are transactions in the account

 From the Company menu, select “Chart of Accounts”

 Decide the account you want to enter the opening balance for

 After that, choose Use Register in the Edit drop-down menu

 For the new transaction, complete the following fields:

 Opening balance's date

 Number/Type- Leave this field

 Payee- Opening Balance by Payee Type (Optional)

 Select the “Opening Balance and Equity” option

 Payment or Deposit: If the opening balance is positive, enter it in the Deposit box; if it is negative, enter it in the Payment field.

 At last, hit the “Record” option.

Income and Expense Accounts:

Because the balance for the income and spending accounts derives from entered transactions such bills, invoices, and checks, there is no opportunity to establish a balance for these accounts.

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Customers and Vendors (A/R and A/P)

For Outstanding Balance before your start date:

There are several solutions available if any of your clients or suppliers have an unpaid amount from before the start date:

Option 1: Put your start date in the As of date field and the outstanding balance in the Opening balance field. This initial amount will be tracked to Unrelated Income or Unrelated Expense. If you intend to set up jobs for clients, you can provide an opening balance for each task. Furthermore, the customer's name will include the sum of the balances for all of the jobs. Remember that the opening balance field is only accessible at the time you add new customers or vendors.

Option 2: Utilize the opening balance item that you will generate anew and use the same in invoices to build opening balances for vendors and consumers. This will help you decide which account you want entries to track to.

Option 3: Instead of entering the entire sum for each of the customers or vendors, enter each individual outstanding bill or invoice. Customers and vendors will both have open balances as a result of all the unpaid transactions. And this will ultimately lead to opening balances for accounts receivable and payable. You can use this option to keep track of all the individual sales and bills that add up to your vendor and customer opening balances.

For transactions that took place following your start date:

If you discover that a customer's or a vendor's transactions occurred on or after the start date, you have the choice to enter the relevant individual transactions using the normal QuickBooks forms, which include:

 Deposits

 Vendor bills

 Bill payments

 Sales tax payments

 Invoices and sales receipts

 Vendor credits

 Customer payments and returns

How to Clear Opening Balance equity in QuickBooks?

In QuickBooks, clearing or removing the opening balance equity is rather easy.

You only need to take the following actions:-

 First, click on the “Gear” button and then select the “Chart of Accounts” option

 After selecting the account, click on the “View Register” option

 Fill up the opening balance on the filter using the drop-down option

 Once done with that, hit the “Apply” button

 Now, you’re supposed to click on the “Edit” tab

 Moving forward, go to the “Deposit Transaction and click” more

 Hit the Delete button as your next step

 At last, click on the “Confirm” button to finish this process.

How to Close Opening Balance Equity Account in QuickBooks?

 In the very first step, launch your QuickBooks program

 Find the income statement and P& L report

 You now need to filter the income statement report until the end of the fiscal period

 The opening balance should then be noted

 Find the New Journal entry Window and input the date of the final day of the closing period to create a new journal entry

 Click on Opening Balance Equity Account after opening the income statement, then create a debit account.

 Continue with the entry's last line; you must select the income summary account

 Create credit for the entire initial balance equity account

 Once finished, click Save, and then select Close

 To zero off the equity or start a Balance account, make sure all of your calculations are accurate.

Conclusion

Hopefully, this guide covered all the major information regarding how to Enter, Clear, and Close Opening Balance Equity in QuickBooks. For more information, you can easily reach the team of experts to get better assistance with less delay. The team will dedicatedly be committed to serving your doubts all round the clock.

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FAQs:

Q1. What can be reasons for Opening Balance Equity in QuickBooks?

Ans: Several factors, including the following, lead to the QuickBooks program creating an opening balance equity account:

 Establishing a database for new companies with opening balances.

 Adding the first bank and credit cards with account balances.

 Entering for the first time a new accounting program.

 Fresh inventory being added as a new item on the chart of accounts.

 With value balances, a new vendor or customer entry (for example, outstanding balances which results in an accounts receivable opening balance).

Q2. How to edit the opening balance in bank, credit card, and other balance sheet accounts within QuickBooks?

Ans: You can follow the below steps in order to edit the opening balance in bank, credit card, and other balance sheet accounts:

 From the Lists menu, select the Chart of Accounts

 On the account you wish to edit, perform double-click on it

 Then, locate the opening balance transaction in the account register (typically the first one)

 Additionally, Opening Balance Equity will be listed in the Account box

 If necessary, update the date and the sum as well

 To save all changes, select the “Record” option.

Q3. What are the procedure involved in editing the opening balance for income or expense accounts within QuickBooks?

Ans: The below steps help you in editing the opening balance for income or expense accounts:

 From the Lists Menu, choose “Chart of Accounts”

 Next, double-click on the expense or income that you want to change

 The Account Quick Report's date should then be changed to reflect your start date

 In the Dates drop-down menu, select ALL if you are unsure about the specific start date

 After that, you can look through the report to find the correct transactions, which are typically among the first ones

 To QuickZoom a transaction, simply place the mouse pointer over it. Double-click that when the magnifying glass displays

 Make all the necessary modifications. If the modifications have an impact on the journal entry, the general journal entry transaction must ensure that the total debits and total credits balance out

 In the end, select the “Ok” button.