One of the first things an accountant looks for when performing the Good Bookkeeping Audit is whether there is a balance in the Opening Balance Equity account. The balance of this account should always be zero. If there is a balance in this account, one of two actions may be required to clear it.

  • If the balance is from a prior year, it may be moved to Retained Earnings

  • If the balance is from the current year, it is replaced with actual transactions

When you first connect your bank or credit card accounts to QuickBooks Online, the software automatically records an Opening Balance Equity transaction. The opening balance is the amount of money you have in an account during the initial setup, or at the start of your Fiscal Year. This amount should be replaced with the actual income, expense and equity transactions. If your company had transactions prior to the start date of your QuickBooks Online account (because it is not a new business), you will need to add these transactions into QuickBooks Online and then delete the Opening Balance Equity amount that was automatically recorded. All unpaid customer invoices, unpaid vendor bills, and uncleared bank transactions need to be entered. You should not manually enter an opening balance when setting up a new asset, equity or liability account. This is a common error that should be avoided to keep your books clean.

Opening Balance Checking
Regina Pitts
Regina PittsChief Financial Officer
Member of the QuickBooks ProAdvisor Program

Your Personal Guide to Seamless Accounting: Advanced QuickBooks ProAdvisor at Your Service

Hey there! I’m Gina, and I’m the proud co-founder of Lend A Hand Accounting. Why did I start this? Well, I believe that everyone should have access to affordable, efficient, and flexible accounting and bookkeeping services. It’s all about making sure these essential services fit snugly into your budget without any fuss.

We’ve ditched the traditional hourly rate system and adopted a flat fee pricing. You might be wondering, “Why does this matter?” Well, this way, you know exactly what you’re paying for upfront and there are no unexpected surprises. You get to pick and choose the accounting services you need, like a customized menu. And the best part? You’re in complete control of when you start or stop using our services. We’re essentially just a call or a text away, no need for endless phone calls or draining trips to the accountant’s office.

I’m not just any accountant though. I’m an Advanced QuickBooks Online ProAdvisor. That means I’m equipped with advanced expertise and resources to help you leverage QuickBooks Online to its full potential. My goal is to make your accounting process smooth and efficient so you can focus on what you do best – running your business.

Ready to get started? Reach out to me directly at 360-637-4799. We can even kick things off immediately if you’re ready. Simply create a free account, and I can instantly take a look at your books and let you know where you stand.

At the end of the day, we’re here to serve you. We really appreciate the trust you place in us and we’re eager to meet all of your accounting and bookkeeping needs. Looking forward to being part of your team!

Take care,

Gina

The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.

Note that QuickBooks Online automatically records Opening Balance Equity amounts with each scenario provided below.

  • The ending bank statement balance for a new bank account you have connected

  • The opening balances for new Balance Sheet accounts that you have created

  • The starting inventory values for new product inventory you have entered

When you create an Inventory Item with a starting quantity and value, by default, QuickBooks Online Plus and QuickBooks Online Advanced will record the value of the item to an Inventory Asset Account and create a balancing entry in the Opening Balance Equity account. The reason this occurs is because this account is the default adjustment account and starting inventory values are created with an inventory adjustment. Avoid doing this, as it will create a balance in the Opening Balance Equity account that you will need to clear at year-end. To avoid this, enter the quantity with a value of ZERO when setting up a new inventory item in QuickBooks Online. Then, when you purchase this inventory item, the quantity and value of the item will be directly recorded into an inventory asset account, and the balancing entry will be the account that you used for the purchase, such as your checking account. You can then create an expense entry that includes the inventory item, quantity and rate for proper accounting.