Understand your balances after switching from QuickBooks Self-Employed or Sole Trader to QuickBooks Online

A business purchased office stationery for £5.99 on 10 April. In a single-entry bookkeeping tool, such as QuickBooks Self-Employed, this is all the information needed to Add transaction. In this example, the transaction shows as Printing, postage and stationery for £5.99 in the Profit and Loss. The Printing, postage and stationery expense account goes up in value.

In a double-entry bookkeeping tool, such as QuickBooks Online, when a transaction is recorded, the amounts get added to at least two accounts. The debit side of the transaction always equals the credit side.

To add the above transaction using a double-entry bookkeeping tool, you also need to know how the business paid for the purchase. In this example, let's assume the transaction was paid for through the business bank account.

As in the single-entry solution, the transaction still shows as Printing, postage and stationery for £5.99 in the Profit and Loss. The Printing, postage and stationery expense account goes up in value, i.e., it's debited. The second entry shows as £5.99 coming out of the business bank account on the Balance Sheet. The business bank account goes down in value, i.e., it's credited. The debit equals the credit for this transaction, so the entry is complete.

When you migrate to QuickBooks Online, we create the balancing entry for all the transactions you entered into the single-entry system. If you connect a bank account to the single-entry bookkeeping system, the balancing entry will be linked to that bank account. In all other instances, it will be recorded as a cash balance. These are the unexpected balances you might notice after moving.

• Personal transactions: You may have excluded personal spending in QBSE or QBST that actually occurred in your bank account.
• Payment methods: Items paid via personal cards or physical cash may have been treated as "cash" in QBSE or all treated as the same bank account in QBST, even if they didn't flow through your business bank.
• Recording gaps: The balance reflects what was recorded in QBSE or QBST — not necessarily what happened in one specific bank account.

If you have a copy of your Profit and Loss Report from your previous system for all dates, you can compare this with the reports in QuickBooks Online to ensure your income and expense entries are accurate. 

Run a Profit and Loss report for "All Dates" in QuickBooks Online and compare this to the report from your previous system. They should agree. If they do not, check for duplicated or missing transactions.

Only profit and loss figures are used in your Income Tax return.

We do not recommend reclassifying historical transactions. However, going forward, you should create separate accounts in your Chart of Accounts for:

• Your business bank account
• Business credit cards
• Physical cash on hand

This account holds the migration adjustment rather than the true balance of one specific bank account. You should see the balance of this account somewhere on the Balance Sheet.

You may want to move this account’s total balance somewhere else on the Balance Sheet, particularly if it’s showing as a cash or bank balance. We suggest you carry this out by creating a journal entry in QuickBooks Online. Moving the balance from the existing account to a newly created account elsewhere on the Balance Sheet. If the cash or bank balance originated from personal funds used in the business, the amount can be moved to an Equity account. 

We recommend you clearly label this account to indicate that it holds a balance at time of migration.

Steps to resolve this issue:

Create a new account within the Chart of Accounts to move the balances to.

1. Go to Accounting, then Chart of Accounts and select New Account. The account type should be a Balance Sheet account, such as Equity.
2. Clearly label the new account so you know it relates to the balance at the time of migration.
3. Create a Journal Entry to move the balances.
4. Select + New, then Journal Entry (under the "Other" column).
5. Set the journal date to the date of migration.
   • Line 1: select the account holding the unexpected balance and enter the balance amount at the time of migration.
   • Line 2: the account should be the newly created Balance Sheet account with the balancing amount.
6. Confirm the debit and credit totals match, then Save and Close.