QuickBooks is an accounting software that helps small to midsize businesses with easy accounting and bookkeeping. When engaging in accounting, you must have heard of several terms that you are not quite aware of. If you’re new to the accounting field, you are going to get confused with the terms that sound heavy yet mean simple. One such term is opening balance equity in QuickBooks.
What is Opening Balance Equity in QuickBooks?
Opening balance equity in QuickBooks is among those accounts that the software generates automatically after the generation of a company. When you first record balances into the accounts, you use QuickBooks opening balance equity as the off-setting entry. It comes under the equity section in the balance sheet of the company. You need to set up QuickBooks opening balance equity to balance prior account transactions. Therefore, it makes sure that the books are matching.
To know if the account entry in the start is correct or not? compare the entire opening balance equity in QuickBooks to the total sum of the prior account balance recorded of opening equity accounts. If the balance does not match, you will need to recheck the entries for any issue in the entry of data. If it matches, the starting entry is correct.
You can think of opening balance equity QuickBooks as a source for QuickBooks to use for balancing the transactions of all accounts.
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Understanding Opening Balance Equity In QuickBooks Via The Balance Sheet
QuickBooks opening balance equity comes under the equity section in the balance sheet. Other than equity, there are two other sections, namely, assets and liability. These three comprise the balance sheet and the equation formed is:
Assets = Liabilities + Equity
Furthermore, in the end, the balance sheet is to be balanced, i.e. you get a zero. If not, you will need another account to offset the amount left. Therefore, opening balance equity QuickBooks. For instance, if $1000 is the remaining balance, you will create an opening balance equity account to offset this balance and therefore tally the balance sheet.
Setting Up Opening Balance Equity In QuickBooks
Opening balance equity in QuickBooks is set up in exactly the same way as a credit card or any bank account. Let’s hop onto the step to set up opening balance equity QuickBooks.
- Launch QuickBooks and open the company menu.
- From here, tap on the Chart of Accounts.
- To proceed further, right-click at an empty space in the Chart of Accounts.
- Select new and choose the type of account. (credit card or bank)
- Enter all the details.
- Click on Enter Opening Balance catch
- Enter opening balance button will be visible even if there exist no transactions, only the account exists.
- Once you add the transactions, enter the opening balance will change to adjust the opening balance.
- You will need to enter the ending balance and date, prior to the start date of QuickBooks.
- Hit okay > save and close.
Steps To Proceed Further
- Note down the closing balance from the balance sheet of the latest bank statement.
- The outstanding control can raise an amount.
- Outstanding deposits are to be subtracted from the entire sum.
- Create a journal entry. Add opening balance equity onto the credit side and credit card or bank account to the debit.
- Now, go to the company menu > Render General Journal Entries.
- Add the date and the no. of entry.
- Next, under the account and debit section, select a bank/credit card account.
- Additionally, add the sum calculated in the second step.
- After this, tap on the account tab from the drop-down list.
- From here, choose Opening Balance Equity
- Add the amount from the second step to the credit section.
- Considering the opening balance equity as a revenue/cash account, add all the remaining transactions via checks or deposits.
- Now, reconciliation will be present without even bothering these transactions or the balance sheet.
- Adjust the opening balance journal entry of every account using the mini reconciliation method.
Steps To Reset The Opening Balance Equity In QuickBooks.
If you want to reset or clear the QuickBooks opening balance equity, the steps are very easy and sorted. All you have to do is follow these steps, precisely:
- Open your QuickBooks.
- Click on the gear icon to open settings.
- Navigate to Chart of Accounts.
- Select the suitable account from here.
- Then tap on the view register.
- You will have to enter the opening balance by clicking on an arrow on the filter icon. It will open a drop-down menu.
- You’ll see an apply button, hit it.
- Next, you will be able to see the opening balance on your screen.
- Hit the pencil icon to edit. It will be available in the right bottom corner.
- Now, navigate to the deposit transaction screen. Hit more.
- Press the delete button.
- Tap yes to confirm. The opening balance equity of QuickBooks will be cleared.
Opening Balance Equity In QuickBooks | Characteristics
Each and every part or feature of QuickBooks has its characteristics that make them stand out. Similarly, opening balance equity QuickBooks has certain features or symptoms that are:
- Unlike other accounts, opening a balance equity account in QuickBooks has a fixed balance.
- After a data file has started initially, the balance in QuickBooks opening balance equity remains for a longer period.
Frequent Errors | Opening Balance Equity In QuickBooks
Opening balance equity QuickBooks can be complicated to set up and hence, you might end up making errors. Here’s a list of common errors users make while setting up opening balance equity in QuickBooks:
- The most common error you can make is entering a balance (opening) when setting up a fresh account, vendor, customer, or inventory item.
- Entries that are posted to a specific QuickBooks opening balance equity are generated or created by you.
- Most of the users are unaware of what opening balance equity is in QuickBooks and how it works.
- The opening balance equity in QuickBooks is disturbed because of misadjustments in bank statements.
- Another mistake you might end up making is leaving the initial balance.
Steps to Review Opening Balance Equity In QuickBooks
It is very obvious that you’ll want to review transactions and balance in opening balance equity QuickBooks. However, you cannot review those if you don’t know how. Therefore, we bring before you ways you can review the opening balance equity in QuickBooks. It can be done by creating a report of all the entries and transactions. Follow these steps one by one:
- Go to reports.
- From here, tap on Company & Financial.
- Now, hit on Balance Sheet Standard from the list of reports.
- Don’t make any edits to the date and look at the equity section.
- Ensure that the balance of that particular report is seen in an account or not.
The QuickBooks opening balance equity is closed into the retained earning account of the previous year when the balance in both is equal. Nonetheless, you can review separate opening balance equity QuickBooks transactions by:
- Tap on reports.
- Go to Custom Transaction Detail Report.
- After this, a modified report box will pop up with the display option already selected.
- Tap on reports. Select the data range you want to review.
- A drop-down list of dates will appear, select them all.
- Go to the columns tab under the display.
- Tick the boxes you want to include in the report and untick those you want to remove.
- Set data type at the list top.
- Tap on filters > choose filter > account > Opening Balance Equity.
- If you want you can also set sort by > type. This will sort all the transactions by their type.
Coming towards the end, we hope you have got a grasp of what opening balance equity is in QuickBooks and how it works. Having said that, let us know in the comments if you have any doubts and we’ll get back to you with the best and most satisfactory solution. Alternatively, you can contact our customer support team for any issues and glitches. We are available twenty-four seven at your back and call, specifically for resolving your problems and issues.
Frequently Asked Questions (FAQs):
Q.1: Is opening balance equity the same as retained earnings?
- Opening balance equity: When a user creates a new account in the chart of accounts and enters an opening balance, the opening balance equity account gets posted. opening balance equity in QuickBooks among those accounts that the software generates automatically after the generation of a company.
- Retained earnings: The retained earnings account tracks and keep a record of all the profits earned in previous years deducting all the dividends and distributions. This account gets its transactions and data from a profit and loss account, therefore you must avoid entering any transactions.
Q.2: Should my opening balance equity be zero?
Answer: A balance sheet consists of different balances from all accounts. The opening equity account falls under the equity section of the balance sheet along with other accounts. When the balance of the opening equity account is zero, it will not show up on the balance sheet. This is a good thing as the account is temporary. However, there is no such rule that it has to be zero, it can contain a balance.