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.
Choose a day when you open a new account in QuickBooks Desktop to begin recording all of your transactions. For the day you choose, you enter the balance in your actual bank account. In this manner, QuickBooks starts off matching your bank records.
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. These opening balance equity accounts are a part of the equity section on a balance sheet, which also includes other equity accounts like retained earnings.
A balance sheet is a financial document that shows a company’s assets, liabilities, and equity. It follows a simple equation: Assets = Liabilities + Equity. This means that the total value of everything the company owns (assets) must equal the total value of what it owes (liabilities) plus the owner’s equity.
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.
What is the Purpose of the Opening Balance Equity in QuickBooks?
Opening balance equity is a fundamental component in QuickBooks, serving to maintain the balance of a company’s financial records. This account is mostly used when the initial balance for an equity account lacks a specific transaction or event reference. It represents the difference between a business’s assets and liabilities at the time of a new accounting period, whether it’s the start of a fiscal year or the establishment of a fresh business.
In QuickBooks, you’ll find the opening balance equity account listed in the Chart of Accounts under the equity category. Typically, the software generates it automatically when creating a new company file or initiating a new fiscal year. This account is housed within the Equity section of the Chart of Accounts and is clearly labelled as Opening Balance Equity.
After it’s creation, this account will hold a balance equivalent to the disparity between the total assets and total liabilities of the business as of the designated start date. This equilibrium is vital to ensure that the accounting equation remains valid: assets equal liabilities plus equity.
Steps to Entering Opening Balances in QuickBooks Desktop
When you embark on creating a new account in QuickBooks Desktop, it’s essential to select a specific date from which you’ll start tracking your transactions. This selected date represents the balance of your real-life bank account on that specific day. Essentially, it aligns QuickBooks with your actual financial records from the very beginning.
Step 1: Enter Opening Balances
This point of origin is referred to as the account’s opening balance, and it encapsulates all preceding transactions. Let’s delve into how you can efficiently enter opening balances for various account types in QuickBooks.
For Bank or Credit Card Accounts
Before adding a new account to your QuickBooks Chart of Accounts, ensure you have the necessary opening balance information.
- Obtain your bank statements or access your bank’s website.
- In QuickBooks Desktop, navigate to the Company menu, and then select Chart of Accounts.
- Right-click anywhere within the Chart of Accounts and choose New.
- Select Bank or Credit Card as the account type and proceed with Continue.
- Provide a distinct name for the account, especially if you have multiple accounts of the same type or at the same bank.
- Complete the remaining data fields.
- Should you need to modify the opening balance later, the button will be labeled Change Opening Balance.
- Upon completion, select Save & Close to record the opening balance.
For Asset, Liability, and Other Account Types
When dealing with accounts on your Balance Sheet, such as Fixed Asset, Equity, Long-term Liability, Other Assets, Other Current Asset, and Other Current Liability, you should exercise caution when entering opening balances.
- Obtain your bank statements or access your bank’s website.
- In QuickBooks Desktop, go to the Company menu, and then select Chart of Accounts.
- Right-click anywhere within the Chart of Accounts and choose New.
- Depending on the account type, select Fixed Asset, Loan, or Equity. For other account types, choose the appropriate option from the Other Account Types dropdown and proceed with Continue.
- Assign a unique name to the account if you have multiple accounts of the same type or at the same bank.
- Fill in the rest of the data fields.
- Upon completion, select Save & Close to save the opening balance information.
Step 2: Verifying the Opening Balance Entry
After inputting the opening balance, it’s crucial to double-check its accuracy. Specifically, ensure that the Opening Balance Equity account displays a zero balance.
- Navigate to the Lists menu and select Chart of Accounts.
- Locate and access the Opening Balance Equity account.
- Examine the account balance, which should read 0.00.
- If the balance does not display as 0.00, don’t be alarmed. Take note of the remaining balance and proceed to run a Balance Sheet Report for the previous year.
- Access Reports and hover over Company & Financial.
- Select Balance Sheet Standard.
- From the Dates dropdown, opt for Last Fiscal Year.
- In the Equity section, cross-reference the Retained Earnings balance from the report with the remaining balance in the Opening Balance Equity account.
How to Close the Opening Balance Equity in QuickBooks?
The process of finalizing the opening balance equity account in QuickBooks is a simple which involves the creation of a journal entry to shift the account’s balance into the relevant equity accounts. Here’s a step-by-step guide on how to conclude the opening balance equity account in QuickBooks.
- Begin by navigating to the Lists menu within QuickBooks, then select Chart of Accounts.
- In the Equity section of the Chart of Accounts, locate the Opening Balance Equity account.
- Right-click on the Opening Balance Equity account, and from the options, choose Make Journal Entry.
- In the journal entry window, proceed to debit the appropriate equity accounts for the amounts that originally contributed to the opening balance equity account. For instance, if this account encompassed figures for retained earnings and common stock, execute debits for these accounts accordingly.
- In parallel, credit the opening balance equity account for the total sum you’re transferring to the equity accounts.
- Thoroughly review the journal entry to ensure its accuracy and that it maintains balance.
- Once you’ve verified the entry, save and then close the journal entry.
Following the creation of this journal entry, wherein the balance from the opening balance equity account is relocated to the suitable equity accounts, the opening balance equity account will be left with a balance of zero. This essential step guarantees that the accounting equation (assets = liabilities + equity) remains perfectly balanced.
May be useful– Enter Beginning Bank Balance in QuickBooks
Steps to Entering and Managing Opening Balances in QuickBooks Online
In QuickBooks Online, correctly recording opening balances for various accounts, such as bank and credit card accounts, is essential for maintaining precise financial records. A well-organized and accurate chart of accounts includes ensuring that any accounts affecting your Balance Sheet have their opening balances correctly entered. This practice provides a clear starting point for each account’s financial history.
Understanding the Importance of Opening Balances
The purpose of opening balances in QuickBooks is to align your accounts with the real-life bank and credit card accounts you’re tracking. When you establish a new account in QuickBooks, you designate a specific date to commence tracking transactions. On this chosen date, you input the balance from your actual bank account. This amount, along with the selected start date, constitutes the account’s opening balance.
To simplify the process, select an easily identifiable date for your opening balance. If you’ve recently opened a new account, use the account’s creation date. For existing accounts, set the opening balance date to match the beginning of your next bank statement cycle. Regardless of the date, rely on your bank statement to obtain the account balance for that day.
Entering an Opening Balance
If your bank and credit card accounts are connected, QuickBooks automatically downloads transaction history up to a specified date. It then calculates and enters the opening balance and date for you. For accounts you don’t plan to connect, manual entry of the opening balance is necessary. Here’s how:
- Ensure you have the accurate opening balance amount.
- Access Settings and choose Chart of accounts.
- Select New to set up your account.
- In the open balances section, specify the date from which you want to start tracking your finances.
- Enter the account balance for that chosen date.
- Save your changes.
With the opening balance entered, you can commence tracking new transactions in QuickBooks from the opening balance date. If you omitted entering an opening balance and have been recording transactions already, you can still input an opening balance later.
Editing an Opening Balance
If the need arises to include transactions that date back further than the opening balance, you’ll need to edit the start date and balance. This action establishes a new starting point and prevents double-counting of transactions.
Follow these steps:
- Go to Settings and select Chart of accounts.
- Locate the account and access View register.
- Identify the opening balance entry then select the opening balance entry.
- Edit the date and then the amount. If necessary, choose Edit to implement your changes.
- Save your modifications.
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?
Opening balance equity is like a special account in accounting software that helps keep track of initial financial transactions in a business. These opening balance equity accounts are a part of the equity section on a balance sheet, which also includes other equity accounts like retained earnings. You just have to follow the below-given steps to close opening balance equity in QuickBooks.
- 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.
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.
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.
What is Opening Balance Equity in QuickBooks, and why is it important?
Opening Balance Equity in QuickBooks is a special account used to balance the books when transitioning to QuickBooks or starting a new fiscal year. It’s important because it ensures that your financial records are accurate and that your balance sheet stays in harmony.
How do I create an Opening Balance Equity entry in QuickBooks?
To create an Opening Balance Equity entry, go to the Chart of Accounts, select “New,” and choose the “Equity” account type. Then, enter the opening balance amount and the date, and assign it to the relevant account, such as Owner’s Equity or Retained Earnings.
When should I use Opening Balance Equity in QuickBooks?
You should use Opening Balance Equity when you’re setting up a new business in QuickBooks, starting a new fiscal year, or correcting errors in your financial records. It’s also used during mergers or acquisitions to align equity accounts.
Can I avoid having an Opening Balance Equity account in QuickBooks?
In most cases, you’ll need an Opening Balance Equity account to ensure the accuracy of your financial records. However, you can minimize its use by entering detailed historical financial data during the initial setup in QuickBooks.
What should I do if I have an incorrect balance in my Opening Balance Equity account in QuickBooks?
If you notice an incorrect balance in your Opening Balance Equity account, you should review your initial setup and transaction entries. Correct any errors and adjust the balance accordingly to maintain accuracy.
Is it necessary to consult a professional accountant when dealing with Opening Balance Equity in QuickBooks?
While you can handle basic Opening Balance Equity entries in QuickBooks, it’s advisable to consult a professional accountant or bookkeeper, especially when dealing with complex situations like mergers or significant financial corrections. Their expertise can help ensure your financial records are accurate and compliant with accounting standards.
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