Understanding the Opening Balance Equity Account

Say, for example, that you enter an opening balance of $5,000 when you set up your cash account. QuickBooks puts $5,000 into your cash account, but it doesn't know where the offset of that $5,000 should go, so off it goes to the opening balance equity account.

Examine the Opening Balance Equity Account

View the contents of your opening balance equity account by pressing Ctrl+A to open your Chart of Accounts.

Scroll down until you see the opening balance equity account.

Click the account name.

Click the Reports button.

Select QuickReport Opening Bal Equity.

TIMESAVER

You can quickly access the opening balance equity account from the Chart of Accounts screen by pressing Ctrl+Q.

Examine the report to determine in which accounts these amounts really belong. Typically, the amounts in the opening balance equity account belong in your company's retained earnings or other ownership equity account.

Double-click any entry on the report to see the source of the entry.

Zero-Out the Opening Balance Equity Account

Select Make General Journal Entries from the Company menu.

Enter the date for this journal entry. Many companies clear the opening balance equity account at the end of the year in preparation for issuing financial statements.

Enter Opening Bal Equity as the first account name.

Enter as either a debit or credit, depending on your own account balance, the amount necessary to clear the opening balance equity account.

Enter a brief memo description.

Enter the account(s) to which you will transfer the amounts in the Opening Balance Equity account.

Click one of the save options.

Your opening balance equity account now has a zero balance and will not appear on financial statements.

Did You Know?

There's a shortcut for clearing the Opening Balance Equity account. Instead of creating a general journal entry, you can double-click the Opening Balance Equity account name in the Chart of Accounts list. The register for the account appears. Make a new entry in the register by entering an amount to increase or decrease the account balance. Most likely the offsetting account will be your company's Retained Earnings account.