The amount of money in a company’s account at the start of a new financial period or year is referred to as the opening balance. Whenever a business begins its procedures or follows a year-end, this is referred to as the first entry that is made. The opening balance can be entered or edited in QuickBooks using a number of procedures. In this post, we’ll go through how to input or modify the opening balance in QuickBooks. You can get all the information you need about opening balance equity in this particular blog.
Understanding: Opening Balance Equity in QuickBooks
The offsetting entry that is used to calculate account balances in QuickBooks is referred to as the opening balance equity. When setting up historical account balances in QuickBooks, it becomes necessary to create this account. It acts as an offset to the other accounts, ensuring that the books are always balanced.
Compare the overall opening balance equity to the total of all opening equity accounts recorded in the preceding account balances after the procedure of account entry has been completed for all of the accounts. It is assumed that the first accounting entry was accurate if the balance matched. If it isn’t, go back and look at the first account balance entry to see if there was a data entry error. The sum in the beginning balance equity account is moved to the other equity accounts, particularly common stock and retained earnings, after you have recorded all opening account balances.
Pointers to be Noted Down
- 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.
- Additionally, if you don’t have a balance before the QuickBooks start date, you cannot input the opening balance.
- 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 business with a date that is later than the actual one.
If you are utilizing journal entries to record the opening balances, keep the following things in mind:
- To maintain the balance of the journal entries, use the Opening Balance Equity account as the offset account.
- Instead of entering each revenue, expense, and cost of goods sold, you can enter the balance for retained earnings from the prior year when you start entering balances at the beginning of the year.
- You may only record one accounts payable or receivable transaction per journal entry. As a result, to load the balances for various accounts, you require numerous journal entries.
- When making journal entries for accounts receivable, sales tax payable, and accounts payable, don’t forget to put the vendor’s or customer’s name in the names column.
- You can opt to input the Inventory Asset Balance through a journal entry, or you can utilize the Inventory Adjustment page to make both quantity and value adjustments.
See also: QuickBooks Reconcile Change Beginning Balance
- 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.
- 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 business will have a strong balance sheet.
- 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.
How to Identify Opening Balance Equity Accounts in QuickBooks?
Understanding the balance sheet is essential for comprehending the equity accounts.
The balance sheet is divided into three sections, namely:
So, the fundamental equation for a balance sheet is:
Assets= Liabilities + Equity
Transactions on a balance sheet must always cancel out at zero. As a result, you usually need to add the same amount to the other side of the equation whenever you create a new asset account with a balance.
How to Set the QuickBooks Opening Balance Equity Account?
The same way you would set up a bank account or credit card, you must set up the QuickBooks opening balance equity account. Follow the instructions listed below to input opening balance equity in QuickBooks.
- Initially, select the “Chart of Accounts” option from the Company menu
- Next, do a right-click anywhere while the Chart of Accounts is selected
- Then select the “New” button
- You must select a bank account or a credit card as your account type
Then, proceed as follows on the Add New Account page:
1. Fill in the fields with pertinent information
2. Hit the Opening Balance Catch button to begin
3. The Enter opening balance button will be available even after the account has been set up and if no transactions record has been recorded
4. The option to “Adjust Opening Balance” will appear after you have entered transactions in place of inputting the opening balance
5. Enter the finishing date and ending balance before entering the QuickBooks Start date from the most recent statement that was received
6. After that, Click the Ok button
Last but not least, hit the “Save & Close” button.
Reasons for QuickBooks Opening a Balance Equity Account
The software creates a QuickBooks opening balance equity account for a variety of factors, including:
- Putting together a database with new business startup balances
- First accounts with balances on banks and credit cards were added
- Making my first use of a new accounting program
- The process of including a new item in the chart of accounts, such as new inventory
- New vendors or clients that have unpaid balances (for example, outstanding balances which results in an accounts receivable opening balance).
If you have any specific query, also get in touch with the experts of QB Live Chat 24×7 Help
How to Enter Opening Balance in QuickBooks?
The below step tells you the process to enter opening balance in QuickBooks:
Bank or Credit Card Accounts
- From the Company menu, select the “Chart of Accounts”
- Right-click here and choose “New” from the menu
- Next, decide if you want a bank account or a credit card
- On the screen that says “Add New Account”:
- Complete the necessary information
- Moving forward, press the Enter Opening Balance button
- If you haven’t entered a transaction yet, this button won’t be accessible
- The button will change to the Change Opening Balance button once a transaction is entered
- Enter the ending date and ending balance from your most recent credit card statement or bank account
- Then press the Ok button
- In the end, select the “Save & Close” button.
You would need to account for all pending credit card or bank transactions in order to make sure that all of your future reconciliations are accurate.
Follow these Steps After Entering your Opening Balances
- Take the ending balance from the bank statement, add any outstanding checks, and subtract any outstanding deposits from the total
- Enter the journal entry crediting the opening balance equity and debiting the bank or credit card
- Make general journal entries by choosing it from the Company menu
- Set the date and make several journal entries
- Enter the amount computed in step 2 in the Debit column and then choose the bank or credit card account from the Account column
- Click on the Account in the following line, then select the “Opening Balance Equity” option from the drop-down menu
- Now, enter the determined amount in the credit field
- Use Opening Balance Equity to create checks and deposits, then enter all of the outstanding transactions
- This will become available for reconciliation without having any effect on the earlier balance sheet
- Reconcile the opening balance journal entry for each account now using the small reconciliation books method.
Other balance sheet accounts
Be careful not to make a double accounting entry while entering a starting balance for equity, fixed assets, other assets, current assets, and other current liabilities. Accounts Payable and Accounts Receivable are viewed differently in QuickBooks.
Through the Chart of Accounts:
- From the Company menu, select Chart of Accounts
- Choose “New” from the Chart of Accounts window’s context menu by right-clicking anywhere on the displayed pane
- The appropriate Account Type should be selected in your next move
- The Add New Account screen displays:
- Enter all necessary information
- On the Enter Opening Balance button, click on it
- Enter the date and the opening balance amount. The day preceding QuickBooks’ launch date is applicable
- Now, press the “Ok” button
- At last, hit the “Save & Close” button.
Using a Journal Entry:
- From the Company menu, choose “Make General Journal Entries”
- Now, provide the needed number for the journal entry and the date
- Choose the desired account from the Account column
- You can alternatively enter the accounts in the order they appear on the trial balance or balance sheet
- Enter the account balance as a positive number and also in the right column, depending on the kind of account
- For example:
- For Asset accounts, positive balances will show up in the Debit column
- These positive balances for Liability and Equity are shown in the Credit column
- Steps 3 and 4 must now be repeated 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
- To save and close, click on it
- 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 residual 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 after any transactions have been made.
- From the Company menu, select the “Chart of Accounts” option
- Select the account for which you want to input the opening balance
- Then, choose Use Register from the Edit drop-down list
- For the new transaction, fill out the following fields:
- Date of the opening balance
- Number/Type: leave this field empty
- Payee-Type Opening Balance (Optional)
- Account- Select the Opening Balance, Equity Payment, or Deposit: If the opening balance is positive, enter it in the Deposit area; if it’s negative, enter it in the Payment box
- At last, select the “Record” option from the menu.
Income and Expense Accounts:
For income and spending accounts, there is no option to enter a balance because the balance for these accounts is determined by transactions that are entered, such as bills, invoices, and checks.
Customers and Vendors (A/R and A/P)
For Outstanding Balance before your start date:
The following methods may be employed if any of your clients or suppliers have an unpaid amount from before the commencement date.
Option 1: Put the unpaid balance with the As of date equal to your start date in the Opening balance column. These initial balance entries will be attributed to expenses or income for unrelated items. If you intend to set up jobs for clients, you can enter the opening balance for each task. Additionally, the customer’s name will display the overall balance for all jobs. Also keep in mind that the opening balance field is only accessible when you add new customers or vendors.
Option 2: Utilize the opening balance item that you will generate again and utilize it in invoices to create opening balances for suppliers and clients. This will help you decide which account you want entries to be tracked to.
Option 3: Instead of entering the total balance due from each client or vendor, enter each outstanding bill or invoice. There will be open balances for both customers and merchants due to all the unpaid transactions. A/R and A/P opening balances will be the end consequence of these. You can use this option to keep track of all the individual sales and bills that add up to your vendor opening balances and customer opening balances.
For Transaction Which Occurred After 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:
- Bill Payments
- Sales tax payments
- Vendor Bills
- Vendor Credits
- Invoices and Sales Receipts
- Customer payments and returns
Common Mistakes to Avoid
Beginning equity balance Short-term use of QuickBooks is recommended. Although it is typical to carry a balance for a long time.
Your opening balance equity account may still have a balance due to incorrectly performed bank reconciliation adjustments that resulted in an initial balance. Make that the bank statement balance transaction takes into account any difficulties, such as unpaid bank checks, while doing bank reconciliation.
The program will modify the QuickBooks opening balance equity account balance if the amount of the journal accounting entry differs from the amount on your bank statement after you close it out.
The following are some other explanations:
- Not understanding how dreadful something is is horrible.
- The opening balance equity account receives an incorrect credit for a transaction.
- The opening balance equity account has still not been removed.
Read also: QuickBooks Reconcile Credit Card
Bringing an Equity Account’s Opening Balance to Zero
To make your balance sheet look more streamlined and professional, remove the balance in this account.
A journal entry can be used in a number of ways to close this account for you or your bookkeeper.
Following is the most typical approach:
- In the event that your company is a corporation, change the remaining equity to “Retained Earnings”
- If you are the only person operating your business: “Owner’s Equity” should be selected as the equity balance
Make a debit entry to the equity account with the opening balance and a credit entry to the owner’s equity account if the balance is positive (or retained earnings account).
Credit the opening balance equity account and debit the owner’s equity account if the balance is negative (or retained earnings account).
Using QuickBooks Opening Balance Equity Management to Create Presentable Balance Sheets
Equity from the opening balance should only be used temporarily. On your balance sheet, it appears unprofessional to have a balance in your beginning balance equity account. It is recommended to transfer opening balance equity accounts to retained profits or owner’s equity accounts.
Steps to Clear Opening Balance Equity in QuickBooks
The procedures to clear the initial balance equity in QuickBooks are as follows; make sure to adhere to the exact steps sequence for each:
- In QuickBooks, first select the Settings tab and then click the Gear symbol
- Afterward, open the Chart of Accounts, select the necessary accounts, and click View Register
- Enter opening balance as well in the drop-down arrow on the filter icon
- Then select the “Apply” from the menu
- After that, the opening equity balance will be shown on the screen
- In the lower right corner, you must choose the Edit option
- Then you must select the Delete button after selecting the More option at the bottom of the deposit transaction screen
- At last, hit the “Yes” button to finish.
To accurately reflect the true health of the organizations, it is crucial for businesses to maintain accurate financial records. With the help of above discussed information, you’ll get help in many ways. They might ask accountants who have in-depth understanding of opening balance equity for help with this. Moreover, you can take assistance QuickBooks 24×7 Live Chat from QuickBooks Helpdesk Team.
How to Edit Opening Balance Equity in QuickBooks?
You can perform the following steps to edit the Opening Balance Equity in Bank, Credit Card and other balance sheet accounts.
- Select the Chart of Accounts from the Lists menu
- To edit an account, double-click on it
- Next, locate the opening balance transaction (often the first one) in the account register
- Additionally, it will have Opening Balance Equity in the Account column
- Edit the date and the sum if necessary
- To save all the changes, select Record.
Visit here: QuickBooks Reconciliation Missing Transactions
What are the Steps Need to be Performed to Edit Opening Balance in Income or Expense Accounts?
The below steps help you to make modifications in Income or Expense Accounts.
- From the Lists Menu, select Chart of Accounts
- Double-click the expense or income that you want to change
- In the Account Quick Report, change the date to your start date
- Choose “ALL” from the Dates drop-down menu if you are unsure about the exact start date
- The right transactions which are typically among the initial transactions can then be found by searching the report
- QuickZoom a transaction by moving the mouse pointer over it
- Double click on the magnifying glass when it appears
- Make all the necessary adjustments
- If the adjustments influence the journal entry, then the general journal entry transaction must have total debits equal total credits
- And finally, click on the “Ok” button.
What Type of Account is an Equity Account with an Opening Balance?
An exclusive account only used by a computer, the opening balance equity account is situated under the equity section of a balance sheet. To make accounting books balance, it is utilized to offset other accounts.