You may have stumbled upon the account titled "Opening Balance Equity" in your QuickBooks chart of accounts and had no idea where it came from or what it does for you. I'd like to share a few insights with you to help clear up any confusion:
- The Opening Balance Equity account is automatically created by QuickBooks the very first time you set up your new company file. No extra action was needed on your part - it just appeared in the "Equity" section of your chart of accounts.
- The Opening Balance Equity account has a very specific function within QuickBooks. It allows you to easily add a beginning balance to an asset, liability or equity account in your balance sheet and have QuickBooks take care of the bookkeeping entry that needs to be made.
For example, if I need to add a new savings account that has a balance of $100 in it to my chart of accounts, I would see the following occur:
Once I click OK to save this newly created account, I could then run a balance sheet and see the impact on the Opening Balance Equity account:
In essence, you are telling QuickBooks what the balance of the account needs to be, and it takes care of the rest without you having to worry about debits and credits or other complicated accounting terms.
IMPORTANT NOTE: Eventually, the Opening Balance Equity account balance should be $0. To ensure that your books are accurate, once all of your accounts have been added (or if you are currently showing a balance in this account that has been there for a period of time), the balance in the Opening Balance Equity account needs to be closed out via a general journal entry and moved to the retained earning account. Ask your QuickBooks advisor or CPA for assistance with that step when ready.
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