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Level 2

I'm confused, how do you use Opening Balance Equity?

I tried to do my research but I am still having a hard time understanding the function of Opening Balance Equity. Can someone REALLY break it down for me? From what I've gathered, the OBE account is for entering the balance of an account when it first connects with QuickBooks, but beyond that I'm lost. I'm still pretty new to QuickBooks, almost a year working with it but the company I work for has had QuickBooks for many years and a lot of the accounts are messed up so I'm trying to smooth it all out to the best of my knowledge. Someone before me did some journal entries in the OBE to get the balance to 0.00, but they put it into Undeposited Funds and now every time I make a bank deposit, the OBE balance is included with the checks. I just uncheck it to finalize the deposit, but is there a way to fix this? I'm trying to understand OBE so I can know the proper place for these journal entries because they aren't making sense to me. How do you use OBE and how do you properly zero it out? Because I don't think it belongs in Undeposited Funds. Thanks.

2 Comments
Level 15

I'm confused, how do you use Opening Balance Equity?

You are correct, it does not belong in undeposited funds

 

OBE is a QB only account created because the programmers did not understand multiple owner equity accounts, so they lump it all together and leave it up to you.

 

QB is double entry accounting, so for every entry there has to be an equal entry in a second account.  A deposit in the bank is  a debit, so a credit has to book  somewhere.  Normally that credit books to income or sales or something because you made money, but when setting up a bank account that amount comes from the owners.  QB throws it in OBE when you create an account with a balance cause it do not know any better.

 

Once all starting entries are made, OBE will have a balance (debit or credit - see on the balance sheet)

Then you use journal entries to distribute some amount of OBE to owner/partner equity

debit OBE, credit owner/partner equity.

 

at that point OBE should be zero, and it should stay that way.  In the normal course of accounting you do not use OBE.

Community Champion

I'm confused, how do you use Opening Balance Equity?

When you start using QB you enter all values from your balance sheet and the difference between assets and liabilities as of your "open in QB" or any other accounting program, is your Opening Balance Equity. Think of your BS as a single Journal Entry of debits (assets) and credits (liabilities) If assets exactly equal liabilities you would not have any entry to OBE to make to offset the difference, and you would also be in bad economic shape with no equity at all.

 

Equity is the value of your investment, your ownership, your company's worth. OBE is that value on the day you started bookkeeping.  At the end of your first fiscal year,if not automatically moved, you would transfer that OBE from the beginning to your regular equity account.

 

OBD is only added to once, on that beginning date, or if you forgot about an asset but you still use the same initial date.

 

Undeposited Funds is only used for actual payments you receive, usually from customer sales in preparation to be deposited or otherwise disposed, it is not for equity adjustment. You will need to find those transactions and edit them to equity 

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