Opening Balance Equity: Definition & How to Fix It

Opening balance equity is a term used in accounting to describe the initial balance of equity in a business at the start of a new accounting period. This balance is usually created when a new company is formed or when a company changes its legal structure. In other words, it represents the difference between a company’s assets and liabilities at the beginning of a new accounting period. As a small business owner, if you find yourself with an opening balance equity account, do not panic.

If your customers or vendors have outstanding balances from before your opening balance date, enter the individual unpaid invoices or bills. This creates open balances that collectively result in your Accounts Payable and Accounts Receivable opening balances. Before you create a new account on your QuickBooks Chart of Accounts, make sure you know what to enter for your opening balance.

Opening balance equity definition

The only time it gets an entry is when you create an account with a balance. After all opening balance accounts are created you need to move OBE to owner equity with a journal entry. Also, closing books ensures your financial data stays the way you want it to. It also prevents any accidental changes that could affect your financial reports. This locks your books so no one can edit your accounting data prior to the closing date.

While the amount left in an account at the end of an accounting period refers to the closing balance. Your opening balance equity will be used to enter in a unique account which you will only use once whenever you are setting up your business in QuickBooks. This is done after entering all of your other opening balances so that you can have exactly the right amount to balance your accounts.

What is Opening Balance Equity and How to Fix It?

However, most people put the balance on for an extended period of time. In case of a lingering balance, it can lead to incorrect bank reconciliation adjustments. That is why an accountant should make sure that the bank reconciliation is adjusted to zero before the completion of the period. Bank Reconciliation is the process of comparing the transactions in a company’s bank statement to the transactions in QuickBooks. When reconciling a bank account for the first time, users may notice a difference between the bank statement and QuickBooks. QuickBooks will create an entry in the Opening Balance Equity account to correct the balance.

QuickBooks will automatically create an entry in the Opening Balance Equity account to balance the books. This account is used to record any transactions that affect the equity of the business during the initial period. These transactions could include the initial investment made by the owners, any loans taken out, or any profits or losses generated during the period.

Opening Balance Equity vs Retained Earnings Account

Business novices may not comprehend such terms; that is why this article contains all the information you need, including opening balance equity definition and what it entails. In case the balances don’t match, it can lead to lingering balance, which can be cleaned up using software like Deskera. For example, if you have an asset account like a checking account, and a balance of $50 is added to accounting software, then the other account must be provided $50 to make your balance sheet balanced. If you want to adjust the opening balance of the bank account, the balance will be set to $50 temporarily. Our account not only created an automatic entry to Opening Balance Equity when we entered opening balance for our cash account, but for every account we opened with an opening balance.

• With this, I’d recommend double-checking your transactions by running the Balance Sheet report.
• This is a built-in tool that can help see the history of changes made to transactions and who added them.
• The equity section of the balance sheet shows the company’s retained earnings, which are the profits that the company has earned and retained over time.
• This is done after entering all of your other opening balances so that you can have exactly the right amount to balance your accounts.
• QB is double entry accounting, so for every entry there has to be an equal entry in a second account.
• The open balance equity account is located under the equity section of the balance sheet along with the other equity accounts, such as retained earnings.

Opening balance equity account is located under the equity section on a balance sheet and is a special account only used by a computer. It is used to offset other accounts for accounting books to be balanced. Below are the journal accounting entries to close the opening balance equity and ensure presentable balance sheets. The beginning balance amount should match what’s on your bank statement for the same start day.

What is Levered Free Cash Flow & its Formula?

Suppose company X has an asset account, and a new asset valued at $150 is introduced into the business. In that case, the same amount is debited on a different account for the balance sheet to remain balanced. Ideally, the account credited would likely be an opening balance equity account.

• It would be hard to the balance for the books later if you started a business with a sizable positive or negative balance on day one.
• It is calculated by taking the amount of money the owner of a business has invested and subtracting all liabilities and debt.
• QuickBooks will automatically create an entry in the Opening Balance Equity account to balance the books.
• Accounts Receivable is the amount of money owed to a business by its customers.
• For example, if you have an asset account like a checking account, and a balance of $50 is added to accounting software, then the other account must be provided $50 to make your balance sheet balanced.

The above guide also helps you exclude expenses from the bank transactions you have downloaded by removing them from your banking page. If you still experience challenges, contact QuickBooks Online customer support for technical assistance. In the Delete process, select the file, lists, or transactions you want to delete, then apply the filters on the file and then click on the Delete option.