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Recording customer opening balance

Hi,

We are migrating from our legacy system to Quickbooks Online.

 

We have to enter opening balance for each of our customers. I understood if we create a new customer, we can define the opening balance at the same time but now we have already entered transactions.

 

Is there a way to record the opening balance for a client for which we already have entered current transactions (e.g invoices)?

5 Comments
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Re: Recording customer opening balance

Let's review this in parts:

 

"We have to enter opening balance for each of our customers."

 

It matters if you are cash or accrual basis. But you want Invoices, not generic Opening Balances.

 

"I understood if we create a new customer, we can define the opening balance at the same time"

 

Never.

 

"but now we have already entered transactions."

 

Exactly. Opening Balance = I don't know why they owe, or what they owe for. That bypassed Sales, sales taxes, aging, etc. And that creates only Income, when you get paid = uncategorized income. Not sales tax liability, if that is part of your consideration. You are letting the data be generically offset to Equity. If you want Equity, then use Real Functions and Real Equity. And that would be listing a Service or Other Charge item linked to Equity, for an accrual basis entity that already reported this as unpaid sales, income and sales taxes, and just needs to manage AR against Aging.

 

Once the file is set up, OBE needs to be offset to Real Equity, taken to 0, and it is never used again. Otherwise, you keep making up value out of the air. OBE = I don't know what this is.

 

"Is there a way to record the opening balance for a client for which we already have entered current transactions (e.g invoices)?"

 

The Invoice did it, already. That is what causes them to have an Unpaid Sale = AR balance. "Current" transactions and any Open Transactions from your cut-over date, would be entered, to get on track.

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Re: Recording customer opening balance

For full detail, enter all the open Invoices and Bills as of last year's closing date, as Invoices and Bills dated on the actual date, so that when you run an aging report or statements, they will be correct.  Use an Item called Prior Year or similar and link it to Opening Balance Equity.    You should not use the regular Item linked to income/expense accounts because the offset is Opening Balance Equity.   If you want the actual transaction/s you would go to the prior year's file.  So the Invoices and Bills would create AR and AP against Opening Balance Equity. When you are finished the total AR and AP should agree to the last year's closing balance sheet of course. 

If there is sales tax involved, it may be tricky.

For other balance sheet accounts, except AR and AP (and Inventory, if it is tracked), use the box in the account set-up screen or in the import file, to create the opening balance per last year's closing balance sheet.  The offset will go to the Opening Balance Equity account.

When you are done the Opening Balance Equity account must be zero.

The Opening Balance Equity account is used for just this case of creating a new file for an existing business.

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Re: Recording customer opening balance

This is exactly why it matters if you are a cash or accrual basis entity;

 

Accrual Basis: "Use an Item called Prior Year or similar and link it to Opening Balance Equity." And you can use Real Equity, such as make an Equity account and name it Prior Year. Then, on the first date of the new fiscal year, you zero out this Equity account to Retained Earnings. You don't need to use OBE; you know the Real Reason you have this as equity.

 

Cash Basis: Use the Real items, original Dates, etc. This is Income and perhaps Sales Taxes and other financial activities not yet reported, so Not Equity. The exception here would be inventory; don't list that you sold inventory historically, because that will impact what you show for inventory currently. Use a Noninventory type item for Prior sales, for instance, or just a Service Item linked to income for "Prior Product Sales."

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Re: Recording customer opening balance


@qbteachmt wrote:

This is exactly why it matters if you are a cash or accrual basis entity;

 

 


That is just from a tax point of view. 

Books ideally should always be kept on the accrual basis, so that you can run reports on either cash or accrual basis.   If you keep books on cash basis you cannot run accrual basis reports.  Cash basis reports are usually not meaningful for management purposes. 

In any event, obviously the asker keeps the books on the accrual basis, because there are customer balances. 

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Re: Recording customer opening balance

Malcolm, for this comment: "Books ideally should always be kept on the accrual basis, so that you can run reports on either cash or accrual basis."

 

Yes, that is the going to be the use of Invoices. This is why a Cash Basis entity would still use Invoices.

 

"If you keep books on cash basis you cannot run accrual basis reports."

 

Here's the problem: if you put Opening balances, that will create Uncategorized Income for cash basis reporting. If you put Equity Items on an invoice for the Cash Basis Entity, you completely Skipped that this is now a Paid Sale, which is the Income (and sales taxes, if that applies) for this file as of that payment date; it is Not Equity for the cash basis entity. They need to list Real Sales here, not equity, because it was not previously reported, either, if it was Not Paid and they are a cash basis entity. You cannot Sweep it out as Equity for a Cash Basis entity.

 

You have to differentiate the Reason for the open invoice: already reported as income or Not. Not = Then list income items on the Unpaid Invoices for the transaction. And in fact, you can even list the real items for the Accrual Basis entity, as long as you don't also manually enter the Trial Balance with an equity value that includes these unpaid AP and AR. That's because they would be dated historically = will already be reporting in Equity, even though you list income/expense on them. That is the Function of accrual reporting.

 

So, if you want to, open AP and AR that is dated in the prior fiscal year can have "real" entries, all the time. What you never want to do is put Equity on open transactions for historic dates for the Cash Basis entity. They have expense and income from the Payment date, not that historic transaction, but the historic transaction identifies what just got paid for.

 

"Cash basis reports are usually not meaningful for management purposes."

 

Oh, that's a real misstatement. Think of this example: I run a County Water District (accrual basis entity) and we invoice on the End of the Month. That means every month looks like we made lots of money on Accrual Basis reports, even if no one ever pays. I provide Cash Basis reports to the Board, because that is the Real Available Funds reporting. If only half the people pay very month, then operations is going to run tight for available funds, even though Sales and Revenue look great on accrual basis.

 

"In any event, obviously the asker keeps the books on the accrual basis, because there are customer balances."

 

I don't see where their reporting basis was ever stated. We brought it up. And you and I both agree that Both Bases are helpful for management of the operation. Nearly all of my Cash Basis clients also use Enter Bill and Invoice, for proper management needs.

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