Above all that, before getting started with a QuickBooks account, it is important to create an opening balance. Know how to enter, clear, and close opening balance equity in QuickBooks.
QuickBooks accounting software helps in accounting activity to keep track of accounts expenses and payroll. It is used by various small and big-sized companies that use QuickBooks accounting software to make their tasks easily done.
What is Opening Balance Equity in QuickBooks
Open balance equity is an account that QuickBooks automatically generates once a company is created. In other words, it is an offsetting entry that is used when you enter your account balance into your QuickBooks accounting software. It is comparable to Retained Earnings or Owner Capital, an equity account. The Open Balance Equity account is essentially a “plug” account (basic accounting debits = credits) used by QuickBooks to balance a transaction. For two reasons: starting account balances or forced changes, QuickBooks will enter a balance into the Open Balance Equity account.
How to Enter and Manage Opening Balance Equity in QuickBooks
You need to enter open balance equity as a credit card or bank account. Follow the below-described instructions to enter opening balance equity in QuickBooks.
Bank or Credit Card Accounts
- Initially, go to the Settings menu and select “Chart of Accounts“
- Next, right-click anywhere within the Chart of Accounts
- And then hit “new“
- For Account Type, you have to select Credit card or Bank
- Now, proceed with the steps in the Add New Account screen:
- Fill out the required field with relevant information
- Hit Enter Opening Balance catch
- The Enter Opening Balance button will be available even after the account is set up if no transaction record exists
- After transactions are entered, you will see “Adjust Opening Balance” instead of entering the opening balance option
- Enter the Ending Date as well as Ending Balance before entering the QB Start Date from the last received statement
- Click “Ok“
- At last, click the Save & Close option.
If you have any outstanding credit card or bank charges, you have to pay for them in order for the potential correct reconciliation to take place.
Perform these steps After Entering your Opening Balances
- Take the closing balance from your last bank statement:
- An amount can be raised by any outstanding controls
- Any outstanding deposits will reduce the amount
- Now, you have to enter a journal entry crediting opening balance equity and debiting the credit card or bank account
- From the Company menu, pick Render General Journal Entries
- Type a number for the entry in the journal as well as set the date
- From the Account column and in the Debit Column, select a bank or credit card account
- Along with that, enter the amount that is calculated in step 2
- Using the drop-down menu, select the Account option
- Then select the Opening Balance Equity option
- Again from the Credit column, enter the amount that is calculated in step 2
- Enter the pending transactions using the Opening Balance Equity as the revenue/expense account by making checks or deposits
- Without affecting the balance sheet of the prior period and these transactions, reconciliation will be available
- Using the mini reconciliation process to reconcile each account’s opening balance journal entry.
How to Clear Opening Balance Equity in QuickBooks?
Clearing/deleting the opening balance equity in QuickBooks is pretty simple. You just have to follow the below-given steps.
- The very first, go to the “Gear” icon and then click Chart of Accounts
- Next, choose the account and then hit view register
- Using the drop-down menu fill in the opening balance on the filter
- Click Apply
- And then click “Edit“
- Now, move to the screen named “Deposit Transaction and hit” more
- After that hit the Delete button
- At last, click “Confirm“.
How to Close Opening Balance Equity Account?
- Open your QuickBooks application.
- Locate P& L report/income statement
- Now you have to filter the income statement report to the fiscal period closing out.
- After this, make a note of the opening balance.
- Now locate the New Journal entry Window to make a new journal entry by entering the last day of the closing period date.
- Open the income statement and click on Opening balance equity account and create a debit account.
- Proceed with the last line of the entry; you require choosing the income summary account.
- Create credit to all the opening balance equity account
- Once done, hit on the Save button and then choose the Close option.
- Ensure that all calculations you perform are accurate to zero out the equity or open a Balance account.
How to Organize the Closing Income Summary?
- Initially, you require making a new journey entry containing the date of the last closing period.
- Now you require debit or credit of the net income amount in the income summary account.
- If you have more expenses compared to revenue, then debit it, or if you have less profit from expenses, you need to credit it.
- Choose the retained earning amount and now credit and debit matching to the income summary report.
- Hit on the Save button and then close it.
Get Insight into Retained Earnings as well as Opening Balance Equity
Retained Earnings: This account is used to track all the earnings minus any distributions or dividends in previous years. This account should be stopped from posting any transactions unless you have written off or received adjustment entries from your CPA in the previous year. It otherwise collects its data on the profit and loss report from earnings.
Opening Balance Equity: This account is posted when you create a new account chart for a loan or item for which you enter the opening balance when setting up the QuickBooks account. For remaining earnings, this account should be closed out and not hold a balance.
In case, you still have any doubts or queries regarding Opening balance equity then feel free to reach out to QuickBooks Consultant just by giving a call at this toll-free number.
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How can we enter an Opening Balance for Equity on other Balance Sheet Accounts?
There are various ways to enter an opening balance for equity, current assets, fixed assets, and other current liability. But you need to carefully do this because it is possible that you may enter a double accounting entry. Both Accounts Receivable and Accounts Payable are considered different. However, you can enter it in various ways like:
● Through the Chart of Accounts
● Using a Journal Entry
● Through the Register
● Income and Expense Accounts.
How do I Calculate the Opening Capital Balance?
You can easily calculate the opening capital balance using the formula: opening capital = closing capital + drawings – additional capital + profit + loss.
What are the Opening and Closing Balances?
The opening balance is nothing but the total amount of cash that you receive at the beginning of the month and the closing balance is the amount of cash at the end of the month.