QuickBooks® automatically records the following transactions to the Opening Balance Equity account:
- The ending bank statement balance transaction when a new bank account is created in the EasyStep Interview.
- Opening balances for other Balance Sheet accounts created in the Add New Account dialog box.
- Opening balances entered when New Customers or Vendors are set up.
- Inventory total value balances entered in the New Item dialog.
- Bank reconciliation adjustments for QuickBooks versions 2005 or earlier.
Other common transactions that a user might assign to this account include:
- Accrual basis opening accounts payable transactions as of the start date.
- Accrual basis opening accounts receivable transactions as of the start date.
- Uncleared bank checks or deposits (accrual or cash basis) as of the start date.
- Users do not know what to do with the Open Balance Equity account.
- Users enter an opening balance when setting up a new account, vendor, customer or inventory item.
- Users create transactions that post to the Open Balance Equity account.
- Balance remains in Open Balance Equity account long after initial start up of the data file.
- Open Balance Equity account has a balance.
Reviewing Balances in Open Balance Equity Account
To review the transactions in Opening Balance Equity account a report of the transactions is first created.
To create a report of the transactions in the Opening Balance Equity account:
- Click Reports > Company & Financial and select the Balance Sheet Standard report.
- Without adjusting the date, view the Equity section of the report to see whether a balance exists in the account.
The Opening Balance Equity account value might be equal to the prior year Retained Earnings. So, if a balance in the Opening Balance Equity account exists and if the balance is equal to the prior year’s Retained Earnings, the Opening Balance Equity can be closed into Retained Earnings – as discussed in the next section.
If, however, a balance remains on the Balance Sheet for Opening Balance Equity, you can review the individual transactions by creating the following report:
- Click Reports > Custom Transaction Detail Report. The Modify Report dialog appears, with the Display tab selected.
- Select the Report > Date Range to be reviewed. Choose All from the Dates drop-down menu.
- In the Columns section of the Display tab, click to place a check mark next to those data fields to be included on the report, or click to remove the check mark from those not to be included on the report. Be sure to include Type near the top of the list.
- Click the Filters tab.
- In the Choose Filter pane, select Account; from the Account drop-down menu select the Opening Balance Equity account, as shown in the image below.
- Optionally, for the Sort By drop-down list, select Type. This option groups the report by type of transaction, which might make reviewing the source of the transactions easier.
With the report sorted by type of transaction, determine whether errors in entries were made is the next step.
One of the most important things to know about the Opening Balance Equity account is that when a file is completely and successfully set up, no balances should remain in the Opening Balance Equity account.
Closing Opening Balance Equity to Retained Earnings
The Opening Balance Equity account should have a zero balance once a file is set up correctly. A correctly set up QuickBooks file assumes the following:
- You are not converting the data from Quicken, Peachtree, Microsoft Small Business Accounting or Office Accounting. Each of these products has an automated conversion tool available free from Intuit that eliminates the need to make startup transactions if the data is converted and not just lists.
- The company had transactions prior to the QuickBooks start date (i.e., it is not a new business). If it is a new business with no prior transactions, then simply begin entering typical QuickBooks transactions with no need for unusual start up entries.
- If there were transactions prior to the QuickBooks start date, and each of the unpaid customer invoices, unpaid vendor bills, and uncleared bank transactions have been entered and dated prior to the QuickBooks start date.
- The trial balance has been entered one day before the QuickBooks start date. (i.e., if the fiscal year starts 1/1 then the trial balance is dated 12/31 of the previous year).
If the above stipulations are true, then the Opening Balance Equity is expected to equal the Retained Earnings balance from the accountant’s financials or from the prior software.
If it does not agree, continue to review the data to identify the errors.
If it does agree, then make the final entry in the startup process to close out the balance in Opening Balance Equity to Retained Earnings.
This article is authored by the Intuit Firm of the Future team. For more information, visit www.firmofthefuture.com.