Opening Balance Equity Quickbooks is used while entering account balances into the Quickbooks Accounting software. This account is shown in your organization’s chart of accounts as an equity account and is created automatically by the software. It depicts the difference between the debit and credit balances in the QuickBooks General Ledger, a business that uses Accounting Software. Before going deep into Intuit’s QuickBooks opening balance equity first understand the meaning of Qbo Opening Balance Equity.
What is Opening Balance Equity in Quickbooks?
The opening balance equity in Quickbooks is a temporary holding account. Quickbooks are created to reconcile discrepancies between actual and expected balances during the setup process or when there are funds it can’t allocate for some reason. The balance of this account shows the difference between the assets and liabilities of a business at the beginning of a new accounting period, which starts in a new financial year or when a new company is established.
How Does Opening Balance Equity Quickbooks Online Work?
Opening balance equity Quickbooks Online ensures that your accounting remains balanced so the financial records of a business are accurate. Quickbooks follows all the fundamental principles of Accounting. You start setting your asset accounts by opening balances in a chart of accounts. Balance the equation, Quickbooks will put the equal balance amounts to this account to offset them. Adding opening balances to your liability and equity account puts the equity account QuickBooks journal entry to zero.
Why do we have a QuickBooks Opening Balance Equity Account in the Chart of Accounts?
Let’s discuss why is it necessary to have an opening equity balance in Quickbooks account in the chart of Accounts.
- Starting a New Business
While starting a new business, we all create assets, liabilities, and equity and enter initial balances to maintain financial transaction records. Suppose your assets represent your initial investment, the starting capital of the business. While entering the initial balances for assets and liabilities, Quickbooks will automatically put the amount into the open balance equity account and keep the accounting equation balanced. There can be several options that depend on your business structure.
- Retained Earnings
Another option is to allocate these funds to the retained earning accounts. It’s more typical when a business has been operating for some time and might have accumulated profits you haven’t taken out as owner’s withdrawal.
- Owner’s Equity or Capital Account
A sole proprietor can move the funds from the opening balance equity QuickBooks account to your owner’s equity or capital account.
- Other Equity Accounts
You may have another equity account where you can allocate the funds which depends on your business structure and specific circumstances. In this case, If the business has several owners, you have to distribute the funds from the opening balance equity qbo account to their respective equity accounts.
- Create a Company File in Quickbooks
Here are some steps to create a company file in Quickbooks for the first time:
Step1: Entering opening balances in Quickbooks for assets
While setting up the process, Quickbooks prompts you to enter the initial balances for your accounts, including balances for assets, liabilities, equity, income, and expenses. You can easily find these initial balances from various sources such as your previous accounting system, bank statements, financial statements, or others. By following a rule, start with assets. As you enter the initial parity for your accounts, Quickbooks automatically calculates the total balance entered, and also creates the Qbo opening balance equity account, and assigns it with an equal balance to the total initial balances.
Step2: Entering opening balance for liabilities
Create your liability accounts and enter their opening balances. Here, you will see how the opening balance equity qbo account decreases to the total of your liability accounts.
Step3: Entering or Distributing Opening Balance for Equity
The last step is to create equity accounts and balance them:
- Create the account and enter the opening parity same as assets and liabilities accounts, it should reduce the amount on opening balance equity QuickBooks journal entry to zero.
- Create an equity account with zero balances and then distribute the amount remaining on the QuickBooks opening balance account to them accordingly through journal entries.
- Create a journal entry to transfer the balance of the qbo opening balance equity account. Debit the equity accounts and credit the equity account quickbooks for the same amount. It reduces the balance of the equity account of QuickBooks and sets it to zero.
Add a new item to the Chart of Accounts
Add a new item to the chart of Accounts such as a new inventory item, a customer, or a vendor entry, It results in the equity account QuickBooks account. Let’s see how it happens:
Adding a new inventory item
Quickbooks asks you to specify an opening balance for this item while adding a new inventory item to the chart of accounts. It can be the initial quantity of inventory on hand or the inventory at the moment of setup.
Adding a new vendor or customer entry with value balances
Adding a new vendor or customer entry to your records along with outstanding balances. Quickbooks creates balancing entries in the opening balance equity QuickBooks account. To zero this balance, you might distribute it to the correct accounts, it may be account receivable or account payable.
Conclusion
Opening balance equity QuickBooks is a temporary account that QuickBooks automatically creates to ensure that the accounting equation is balanced. Many users have been confused, about how to handle this account properly to maintain accurate accounting records, and how can we present a professional balance sheet to banks, investors, and auditors. So, it’s nice to close the qbo opening balance equity in Quickbooks transfer the balance to the appropriate equity accounts, and ensure that your accounting records are up to date.
Read More Article:
Quickbooks Online Undo Reconciliation
QuickBooks Online Certification Exam Answers PDF
