QuickBooks and the Open Balance Equity Account

In my book, QuickBooks 2010 Solutions Guide I devote an entire chapter to handling entries in the Opening Bal Equity account that should have a zero balance when a file is set up correctly.

When I refer to a correctly set up QuickBooks file, I assume the following:

• You are not converting your data from Quicken, Peachtree, Small Business Accounting, or Office Accounting. Each of these products has an automated conversion tool available free from Intuit that eliminates the need to do startup transactions if you convert the data and not just lists.
• Your company had transactions prior to the QuickBooks start date. If it did not, you simply enter typical QuickBooks transactions using common forms with no need for unusual startup entries. If you did have prior transactions to the QuickBooks start date, you are not going to re-create these prior transactions in your QuickBooks data file.
• You have entered each of your unpaid customer invoices, unpaid vendor bills, and uncleared bank transactions and dated them prior to your QuickBooks start date.
• You have entered and dated your trial balance one day before your QuickBooks start date. (You might need to request the trial balance numbers from your accountant if you are not converting from some other financial software that provides you with a trial balance.)
• When you create a Trial Balance report in QuickBooks dated one day before your QuickBooks start date, it agrees with your accountant’s trial balance or with the trial balance from your prior financial software with the exception that you have a balance in the Opening Bal Equity account.

If you answered yes to each of these assumptions, I would expect that your Opening Bal Equity account is equal to the Retained Earnings balance from your accountant’s financials or from your prior software. If it doesn’t agree, you need to continue to review the data to determine what the errors are. If it does agree, you are prepared to make the final entry in your start up process.

To create this closing entry, use a General Journal Entries form:

1. Click Company, Make General Journal Entries to open the Make General Journal Entries dialog.
2. Enter a Date (it should be one day before your QuickBooks start date).
3. Type an Entry No.
4. Leaving line 1 of the form blank, on line 2 of the Make General Journal Entries form, decrease (debit) Opening Bal Equity by $74,987.72 and increase (credit) Retained Earnings by the same amount. This action “closes” Opening Bal Equity to Retained Earnings. Click Save & Close.
5. Click OK to the QuickBooks warning dialog that displays; QuickBooks saves the transaction. The warning advises that you are posting to a Retained Earnings account and that QuickBooks has a special purpose for this account. It is appropriate to post this entry to Retained Earnings. This warning is a result of a preference setting that you can access by clicking Edit, Preferences and selecting Accounting from the list on the left. Click the Company Preferences tab and choose the option to enable the warning. (You must be logged in as Admin or External Accountant user and in single-user mode to access this preference.)

When the transaction is saved, create the Balance Sheet Standard report as explained earlier in this chapter and verify that your ending numbers are accurate; that is, that they match your accountant’s or your prior software trial balance for the same period. After making the journal entry you will have the proper Retained Earnings balance, and you no longer have a balance in Opening Bal Equity.