In simple terms, Opening balance equity is considered the offsetting entry that is used when adding account balances in the accounting software QuickBooks. This account is required when there are previous account balances that are set up in QuickBooks initially. Not to mention, this account provides an offset to different accounts to keep other books balanced.
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After the account entry process is finished for all the accounts, differentiate the overall opening balance equity with the all equity accounts sub that is added to the previous account balances. In case the balances have a match, then the previous accounts entry was precise. In case it is not, do initial account balance entries review to check the presence of any data entry error?
Let us learn more about the Opening Balance Equity Account and its related transactions.
What are the Transactions QuickBooks Automatically Records to the Opening Balance Equity Account?
Here is the list of the transactions QuickBooks automatically records to the Opening Balance Equity account:
- Opening balances for different Balance Sheet Accounts prepared in the Add New Account dialog box.
- Inventory total worth balances added in the New Item dialog.
- The ending bank report balance transaction when a fresh bank account is made in the Easy Step Interview.
- Opening balances are added when New Vendors or New Customers are set up.
- Bank Reconciliation changes for QuickBooks 2005 version or its previous ones.
Note: There is a list of other common transactions that users often allocate to this account. Such transactions include:
- Transactions concerning accrual basis opening accounts receivable as of the first date.
- Transactions concerning accrual basis opening accounts payable as of the first date.
- Uncleared deposits or checks, both on Cash or Accrual Basis as of the first date.
What are the Common Errors Users make Concerning the Opening Balance Equity Account?
Here is the list of the common errors users make concerning the Opening Balance Equity account:
- Users add an opening balance while setting up a new account, customer, vendor, or inventory item.
- Users are not of aware how to use the Open Balance Equity account.
- Users prepare transactions that post to the particular Open Balance Equity account.
What are the Symptoms of an Opening Balance Equity Account?
Here are the symptoms of an Opening Balance Equity account:
- Open Balance Equity account has a specific balance.
- Even after the initial start-up of the particular data file, the balance remains in the Open Balance Equity account for long.
How to Review Balances in Open Balance Equity Account?
In order to review the transactions in the Opening Balance Equity account, a specific report of the given transactions is created at the beginning.
Here are the steps you need to take to create a report of the transactions in the particular Opening Balance Equity account:
Step 1: Press Reports.
Step 2: Now click Company & Financials.
Step 3: Now choose the report, Balance Sheet Standard.
Step 4: Without changing the date, check the Equity segment of the particular report to find whether a balance is present in the account or not.
The Opening Balance Equity account value may be the same as that of the last year’s Retained earnings. Hence, if a specific balance in the Opening Balance Equity account is there, and in case the balance is same as the last year’s Retained Earnings, then the particular Opening Balance Equity can be sealed into the Retained Earnings as mentioned below.
However, if a particular balance is there on the Opening Balance Equity Balance Sheet, it is possible to analyze the particular transactions by generating the report mentioned below:
Step 1: Press Reports. Now press Custom Transaction Detail Report. Now the Modify Report dialog box will show and the Display tab will be chosen.
Step 2: Choose the Report option.
Step 3: Now select the Date Range that needs to be checked. Select all the Dates from the given drop-down menu.
Step 4: In the Columns segment of the particular Display tab, press to put a checkmark beside the data fields to be added to the report. You can also press to remove the particular checkmark from those specific ones that should not be added to the report. Make sure you enter Type beside the top of the given list.
Step 5: Press the tab for Filters.
Step 6: In the pane for Choose Filter, choose Account. From the given Account drop-down, choose the Opening Balance Equity account.
As an option, for the particular drop-down list of Sort By, choose Type. This option assembles the report by the transaction type which make analyzing transaction sources convenient.
With the report categorized by the kind of transaction, analyzing whether the issues in entries were done is the next move.
Note: One of the most crucial things to understand about the Opening Balance equity account states that when a particular file is properly and successfully set up, the Opening Balance Equity account must not have any remaining balances.
What does a Correctly Setup QuickBooks File Assumes?
The Opening Balance Equity account must have a zero balance post set up of a file in the right manner. A properly set up QuickBooks file undertakes the following:
- The organization had transactions before the start date of QuickBooks, in other words, it is an old business. In case it is a new business that has no previous transactions, then just start adding general QuickBooks transactions minus any requirement for strange start-up entries.
- If there are any transactions before the start date of QuickBooks, and all the unpaid customer invoices, uncleared bank transactions, vendor bills that are unpaid, etc., have been added or dated before the QuickBooks start date.
- One day prior to the QuickBooks start date the trial balance has been added. For instance, if the fiscal year begins on 1/1 then the particular trial balance dates to 12/31 of the last year.
If the above conditions are right, then the Opening Balance Equity is anticipated to be the same as the Retained Earnings balance from the previous software of financials of the accountant.
If it fails to agree, keep reviewing the data to spot the errors. In case it does not agree, then do the final entry in the start-up process to close out the Opening Balance Equity balance to Retained Earnings.
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Frequently Asked Questions (Faqs)
What are the Reasons for Opening Balance Equity?
The software makes an opening balance equity account for several reasons such as:
• Initial addition of credit cards and bank with account balances.
• Entering a new item to the Chart of Accounts like a new inventory.
• Preparing a data file for new businesses with the help of beginning balances.
• Entering the first time into an accounting software.
• New customer or vendor entry with value balances. For instance, outstanding balances leads to accounts receivable opening balance.