Ah, the Opening Balance Equity account – as accounting professionals it’s one of the first things we look for when someone hands us a QuickBooks� file at year end. The balance should be zero and your new QuickBooks company file is complete and accurate as of the start date. For income or spending accounts, opening balances are not required to be entered. Retained earnings or other equity accounts should receive any remaining funds in the Opening Equity account. For a real-world bank account that you have either recently opened or have owned for some time, you can enter the opening balance.

• These are special equity accounts created by QuickBooks and exist on the balance sheet.
• Not closing out this account makes your balance sheet look unprofessional and can also indicate an incorrect journal entry in your books.
• Has a good technical and business background which helps me stay updated.
• Ideally, the account credited would likely be an opening balance equity account.
• You may also need to specify whether it’s a subaccount under another category.
• Create an opening equity and owner’s equity account by scheduling debit and credit entries.
• The Total Value field in the New Inventory Item setup window is designed for use only during initial data file setup.

During Item Setup she enters “30” in the Quantity on hand field and $1,500.00 in the Total Value field. This Debits the Inventory Asset account for Pirates Mehardy Supply, and Credits Opening Balance Equity. Opening Balance Equity has been used as the offsetting account for our other initial account balances as well.

Accounting & Tax

The Accounting software program creates an opening balance account to offset opening balance transactions. Equity accounts are listed in the equity portion of the Balance Sheet. Posting Closing Entries for Retained Earnings Post this balance to the retained earnings account to close the income summary account. For example, if the difference between the total revenue and expenses is a profit of ​$1,400​, credit the amount in the retained earnings account, to zero out the income summary account.

While calculating account balances into the QB accounting software, the offsetting entry used is known as the opening balance equity. The necessity to set up this account arises when previous account balances are being set up in QuickBooks. It serves the purpose of an offset to the other accounts, ensuring that the books are always balanced.

Balance Sheet 101: Understand Opening Balance Equity Accounts

Once the account entry process is completed for all accounts, compare the total https://www.bookstime.com/articles/opening-balance-equity-what-is-it-and-how-to-fix-it to the sum of all beginning equity accounts listed in the prior account balances. If the balances match, then the initial entry of accounts was accurate. If not, then review the initial account balances entry to see if there was a data entry error.