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Level 1

Opening balance equity/account setup

I am having trouble mentally comprehending the accounting aspect of opening balance equity.  I understand the necessity of the account and (most) of my entries needed, but am struggling with tracking expenses.

I am setting up our personal finances and, for the most part, I am ok.  However, where I am getting confused is entering opening balances and seeing the expected results in vendor accounts after a payment is made.

For our long term liabilities (house, car), the entries are (cr) Long terms liability account – vendor and (dr) opening balance equity.  When I make a payment, I am using write check and accounts being affected are:  (cr) checking (dr.) long term liability – vendor (for principal payment) and an expense account for interest paid. Is this correct?

In setting up medical bills, my GL entry is (cr) Mr. Dentist – liability account and (dr) open balance equity for the same amount.  I choose the name of the physician in the “Name” field to tie it to the vendor.  This puts each of the medical accounts on the balance sheet as I would expect.  Under this scenario, I have two questions:

Question #1 – When I go to Mr. Dentist’s vendor file, it shows the GL in the transactions list, but no balance next to Mr. Dentists’ account name.

Question #2 – When I make a payment to Mr. Dentist, I use the write check feature which will (cr) the checking account and then I’m stuck on what account to use for the debit account – the liability account to reduce the balance going forward or an expense account so that I can track the total expenses for the year?  If I use the liability account, it reduces the liability for the Balance Sheet, but then I have no way of tracking what total expenses I have paid to this vendor for the year.

Lastly, once I get the above questions straightened out, do I zero the opening balance equity and transfer to Retained earnings or will this be done at the end of the year automatically at closing?

Sorry for the lengthy note, just wanted you to see where my thought process is going.  Any insight would be appreciated.  Thanks in advance.

Solved
Best answer 12-10-2018

Best Answers
Highlighted
Level 15

Opening balance equity/account setup

In general, you don't NEED Opening balances at all. In fact, once the data file is up and running, OBE should be 0 and never used again. OBE and those Opening Balance fields are provided by the programmers as DIY. There is no need to "split" equity like this. If you know the Real Equity really is Equity, why allow OBE to be created at all?

For instance, add a Bank account and do NOT put in the balance as OBE. Make a Deposit entry. You know this is your funds = Owner Equity. No OBE needed.

View solution in original post

21 Comments
Highlighted
Level 15

Opening balance equity/account setup

In general, you don't NEED Opening balances at all. In fact, once the data file is up and running, OBE should be 0 and never used again. OBE and those Opening Balance fields are provided by the programmers as DIY. There is no need to "split" equity like this. If you know the Real Equity really is Equity, why allow OBE to be created at all?

For instance, add a Bank account and do NOT put in the balance as OBE. Make a Deposit entry. You know this is your funds = Owner Equity. No OBE needed.

View solution in original post

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Level 1

Opening balance equity/account setup

Thank you!
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Level 1

Opening balance equity/account setup

@qbteachmt your saying a Opening Balance Equity isn't needed. What account can be used as instead of it?

For example for Long Term Liability you can only enter a journal entry or a transfer. For a journal entry it has to have a credit and a debit to put it into the register. I used the credit as the liability account and debit as open balance equity.

Also about the credit card balance its a negative so the Open Balance Equity will always have a negative balance because of the credit card opening balance. How can that be fixed?

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Level 15

Opening balance equity/account setup

"your saying a Opening Balance Equity isn't needed. What account can be used as instead of it?'
Real Equity would be used.

"For example for Long Term Liability you can only enter a journal entry or a transfer. For a journal entry it has to have a credit and a debit to put it into the register. I used the credit as the liability account and debit as open balance equity."

Debit Real Equity: Retained Earnings, or Owner Equity, or Unrestricted Net Assets. You know this is Really Equity, so using OBE just means having to make yet Another entry to zero out OBE to the Real Equity. Use Real Equity, directly and for the First time you handle that data. Stop doing it in Two Steps.

"Also about the credit card balance its a negative so the Open Balance Equity will always have a negative balance because of the credit card opening balance. How can that be fixed?"

No, OBE always ends at 0, because you Make it Zero. Once the file is set up, OBE is made to be zero and OBE is never used again, if you used it at all.

The Credit Card account ending negative means Overpaid. You either overlooked entering Charge details; or you have a Refund Credit on that account. Only you know if the negative reflects Reality for that account.
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Level 4

Opening balance equity/account setup

No worries on the lengthy note.  I love answering this stuff. I just hope I am right.

First, I would recommend you use Quicken instead of QuickBooks for your personal finances unless you are some kind of family corporation. You will find you don't have to deal with a lot of what you are posting plus, you will get quite a few reports and features that are useful to an individual but not a company.  Having said that.

You will need to pick a starting date for your "Go Live".  That could be today or the beginning of the year.  I would think the end of last month would be better as you have a period end and you don't have to enter all transactions from the beginning of the year.  Make a list of all assets  (car, house, boat, bank accounts, investments) and a list of all liabilities (Mortgage, car loan, student loans, credit card balances). The net of Assets minus Liabilities is your equity.  Now, post one journal entry with all assets, all liabilities, and owner's equity dated at the end of last month and you have your beginning balances.  You don't have to do this in Quicken, $60 at CostCo.

 

Forgive the capital letters. I am not shouting at you but I am writing this in Word and it is the only thing that will transfer over when I cut & paste.

For our long term liabilities (house, car), the entries are (cr) Long terms liability account – vendor and (dr) opening balance equity.  When I make a payment, I am using write check and accounts being affected are:  (cr) checking (dr.) long term liability – vendor (for principal payment) and an expense account for interest paid. Is this correct?  KIND OF, YOU WILL CREATE A LOAN FOR YOUR HOUSE  AND THEN MAKE PAYMENTS AGAINST THE LOAN. IT WILL CALCULATE THE INTEREST, PRINCIPLE, AND ESCROW YOU HAVE PAID.  PAYMENTS TO PRINCIPLE WILL REDUCE THE LONG TERM LIABILITY.  

 

In setting up medical bills, my GL entry is (cr) Mr. Dentist – liability account and (dr) open balance equity for the same amount.  I choose the name of the physician in the “Name” field to tie it to the vendor.  This puts each of the medical accounts on the balance sheet as I would expect.  Under this scenario, I have two questions: AGAIN, CREATE A VENDOR FOR MR DENTIST AND PAY THAT. VENDOR RECORDS ARE LINKED TO SHORT TERM PAYABLES ACCOUNTS.

 

Question #1 – When I go to Mr. Dentist’s vendor file, it shows the GL in the transactions list, but no balance next to Mr. Dentists’ account name. HOW ARE YOU POSTING YOUR ACTIVITY?  YOU SHOULD BE USING ENTER BILLS TO THE MR DENTIST VENDOR ACCOUNT. NOT DIRECTLY TO THE GL.  IS IT POSSIBLE YOU HAVE PAID ALL THE OPEN ITEMS?  THAT WOULD CLEAR OUT ALL OPEN BILLS AND GIVE YOU NO BALANCE.

 

Question #2 – When I make a payment to Mr. Dentist, I use the write check feature which will (cr) the checking account and then I’m stuck on what account to use for the debit account – the liability account to reduce the balance going forward or an expense account so that I can track the total expenses for the year?  If I use the liability account, it reduces the liability for the Balance Sheet, but then I have no way of tracking what total expenses I have paid to this vendor for the year. WHEN YOU SET UP THE MR DENTIST VENDOR ACCOUNT, IT WILL ASSIGN THE SHORT TERM PAYABLES ACCOUNT AUTOMATICALLY.

 

Lastly, once I get the above questions straightened out, do I zero the opening balance equity and transfer to Retained earnings or will this be done at the end of the year automatically at closing? IT IS DONE AT END OF YEAR AS PART OF CLOSE.  LET ME KNOW IF THERE IS A REASON YOU ARE NOT USING QUICKEN FOR YOUR PERSONAL FINANCES. I AM CURIOUS. YOU ARE GOING TO GO THROUGH A LOT OF WORK  TO ACCOUNT FOR THINGS YOU DON'T NEED TO DEAL WITH.


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Level 1

Opening balance equity/account setup

Thank you so much for the time you took to answer.  Your insight was very helpful.  I currently have our personal financial information in an Excel file but wanted to put over to QB as a learning tool.  Think I'll stick with where I'm at right now.  Even at that, your answers were most helpful in other areas of QB that I deal with.  Thank you!
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Level 1

Opening balance equity/account setup

Hello.

I was reading your comment and wondered if you can help me solve a issue we have at our comic book shop. My dilemma is the following: There is a vendor that is our main supplier and we've owed past due invoices with them. Currently, my boss (co-owner) had a 401K and decided to borrow from it, in order to pay the debt we owe and continue ordering from this specific vendor.

Now, he took 30K and the funds went into his personal checking account and he decided to send the check from his personal account instead of transferring the money to the business account and pay it from there. Why he did that, because if he would've transferred the 30K to the business account, they had stated it would take a while to clear. Our vendor wasn't budging on sending us anything until these past invoices were paid. How can I make the funds available in Quickbooks to apply to all these past invoices? Here's what I did: Journal Entry from "Partnership Loan" account to a "Cash on Hand" account. Why? Because when we tried doing it from "Partnership Loan" to an "Open Equity" account hit save, the options on applying the payment to each bill didn't have an "Open Equity" account option. It only gave us to take from our regular Banks or a "Cash on Hand" Bank. Since we don't have feeds for this bank, being that it is his personal bank account, we wouldn't be able to reconcile it. So making a new bank for just this 1 time use wouldn't be ideal in my opinion, but I could be wrong. I just want a second opinion or if you know a better way. FYI, the check was already cashed by vendor.

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QuickBooks Team

Opening balance equity/account setup

Hi desiball80,

We’ll not touch the part where the owner took a loan from 401k to his personal account. Instead, we’ll touch the part where a personal fund is used to pay your vendor.

If this involves inventory items, you need to show that your inventory count is also increasing. This is realized when you record the bills in QuickBooks. Then, since you can’t use an equity account to pay them, you can create a barter account which you can use to pay them. It’s a bank account with zero balance, and you can name it as clearing, barter, or wash account. You’ll use it to move the funds from the equity account to pay the bill.

 

First, you’ll create a journal from your equity account to the barter account. 

Second, pay the bills from the barter account. This will zero out the balance of the barter account.

Third, reimburse the owner (equity account) from your business account by creating a check transaction.


Lastly, please have an accountant double check your records to make sure everything is recorded correctly.

Feel free to post again if you have other questions.

 

Have a good day!

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Level 1

Opening balance equity/account setup

Hello JessT,

Thank you for your response. Please review my attachments to finish up.

I wanted to see if using Cash in Hand as a bank would raise a red flag and if the Clearing account would be more acceptable for report basis. Also, I would like to know under which "Detail Type" I should choose? Thanks in advance.

-desiball80

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QuickBooks Team

Opening balance equity/account setup

Good day, desiball80!

 

Thank you for the screenshot.

 

For reporting purposes, I'd suggest asking an accountant about the name of the account. Right now, you may leave it as it is and edit the account later on. Then, for the Detail Type, you can choose Cash on Hand. Here's an additional reference about this type of account: Set up a Clearing Account.

 

By the way, I can tell that you're using QuickBooks Online based on your screenshot. You might want to check out these articles for your reference in the future:

We're just around if you need anything else.

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Level 2

Opening balance equity/account setup

Trying to understand how to remove my TOTAL loan equity balance (-$389,717.85).

 

-$15,628.99 (Mortgage 1) was pd. in full in 2018. How do I remove the $15,628.99 from my loan equity balance now? I made payments from a "dummy" bank account specifically for this loan to my long-term liability Mortgage 1. None of these payments reduced the loan equity balance, so I don't know how to remove this amount now???

 

Also, the remaining of the $389,717.85, which is $374,088.86 (Mortgage 2) is now at a balance of -$334,596.69. In the case of the Mortgage 2, how do I get the balance to match the current long-term Mortgage 2 account balance? Thanks so much for any help you can give!

 

As for the question/comment regarding Quicken vs. Quickbooks. FOR ME, Quicken did not give me the freedom to create as many chart of accounts/subaccounts that I wanted (banks/expenses), AND, there was NO WAY to even track your mortgage, interest, and escrow. A HUGE complaint by many, I realized, AFTER buying the software and spending time trying to get to know it. I love QB's for my personal finances! I have never seen anyone use it the way I do, but I LOVE IT! I will not go to any other software until I absolutely have to!

Highlighted
Level 2

Opening balance equity/account setup

Trying to understand how to remove my TOTAL loan equity balance (-$389,717.85).

 

-$15,628.99 (Mortgage 1) was pd. in full in 2018. How do I remove the $15,628.99 from my loan equity balance now? I made payments from a "dummy" bank account specifically for this loan to my long-term liability Mortgage 1. None of these payments reduced the loan equity balance, so I don't know how to remove this amount now???

 

Also, the remaining of the $389,717.85, which is $374,088.86 (Mortgage 2) is now at a balance of -$334,596.69. In the case of the Mortgage 2, how do I get the balance to match the current long-term Mortgage 2 account balance? Thanks so much for any help you can give!

 

As for the question/comment regarding Quicken vs. Quickbooks. FOR ME, Quicken did not give me the freedom to create as many chart of accounts/subaccounts that I wanted (banks/expenses), AND, there was NO WAY to even track your mortgage, interest, and escrow. A HUGE complaint by many, I realized, AFTER buying the software and spending time trying to get to know it. I love QB's for my personal finances! I have never seen anyone use it the way I do, but I LOVE IT! I will not go to any other software until I absolutely have to!

Highlighted
Moderator

Opening balance equity/account setup

Thank you for joining in the thread, @BudgetCruncher.

 

You may have created an expense/check payment on the Equity Loan account but did not deposit the loaned amount to this account. This is why a negative balance on the equity account is showing because you had made expenses that exceed its balance.

 

Since the balance is negative you should create a bank deposit to increase the balance to zero or positive balance. If the balance is positive and needs to be removed, there should be an expense created to reduce or remove the balance.

 

In QuickBooks Desktop, there are three steps to manually track loans. First, you'll need to set up a liability account, then set up the lending company and record the loan amount. 

 

You can refer to this article for more information: Manually track loans.

 

Following the steps outlined in this article will ensure the amount reduction. 

 

I want to make sure everything is taken care of for you, so let me know if you have any other issues or concerns by leaving a comment. Have a good one.

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Level 2

Opening balance equity/account setup

 
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Level 2

Opening balance equity/account setup

Oh GEESH! I overlooked the Fixed Asset part for Non-Cash Loans! I finally "GOT IT!" Thank you for the link!  I slowed down to read it all and it was the last part that I had missed! Thank you so much for your help!

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Level 1

Opening balance equity/account setup

I was shocked to find out that QBO doesn't have an import for trial balance.  I still find this perplexing.  Anyway so I had to just use a journal entry and get my balances over from -gag- Sage!

 

However, like everyone else for some odd reason it went into opening balance equity.  I am now going to delete it but the program did say it would delete my entire JE.  I am checking to see if this is how I get rid of it by just deleting it but it won't actually delete my JE?

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QuickBooks Team

Opening balance equity/account setup

Good day, leebrendalee.

 

We're unable to pull up a detailed report if the're no transaction recorded in QuickBooks Online. That's the reason why we're also unable to import a trial balance.

 

Also, the JE associated to the opening balance equity you're trying to delete will be deleted as well. You'll want to check the JE you've created and change the affected accounts. It'd also be best to ask an assistance from your accountant so they can guide you with the best accounts to include into your JE.

 

Instead of creating JE, you can also manually import your transactions from Sage. Then, you can simply add, match, or categorize them. Here are the articles for your guide:

Comment again if you have more clarifications. Have a great day!

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Level 1

Opening balance equity/account setup

Thanks for the input and reply.  I'm not sure what you mean about the trial balance since I can import any trial balance into any accounting software except QBO. 

 

Anyway, no prob.

 

So if I have done the books in Sage from Jan to July, all reconciled etc. into proper accounts, you are saying I can some how import into QBO?

Highlighted
QuickBooks Team

Opening balance equity/account setup

Thanks for actively responding, @leebrendalee. To clarify, you can only import Customers, Vendors, Bank Data, Products and Services, Chart of Accounts, and Invoices in Quickbooks Online. The suggestion provided by my peer, @AlexV is applicable for importing bank transactions only.

 

I understand that you want to move over all your data from Sage to QBO. The easier way to do this is to use the QuickBooks Desktop conversion tool. Then, move your data from QB Desktop to Online. I'd recommend you check first what to expect when you switch from QuickBooks Desktop to QuickBooks Online

 

In case you'd want to give it a go, install and download QuickBooks Desktop software first. We have trial versions available so you don't need to purchase. 

 

Once done, refer to these helpful articles for additional reference about converting from Sage to QuickBooks Desktop:

 

 

Then, you can now convert your QuickBooks Desktop data to QuickBooks Online

 

For future reference, check out this article: QuickBooks Desktop system requirements to check if your computer is compatible with QuickBooks to ensure the process will go through smoothly.

 

Visit again if you need further help with the process. We're always around to help you some more. 

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Level 1

Opening balance equity/account setup

Hi Thanks for replying.  I just want to make sure I have this correctly.

 

I have all the books done and reconciled in Sage. 

 

So download QB Desktop

export the trial balance from Sage and import into QB Desktop

and 

then up to QBO..

So will that actually import all the transactions that are complete? That would be interesting ..

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QuickBooks Team

Opening balance equity/account setup

Thank you for coming back here in the Community, @leebrendalee.

 

You are on the right track, leebrendalee. Just a quick heads up that some of the information will not be imported during the conversion. QuickBooks won't import any non-posting transactions or accounts except for estimates and purchase orders.

 

Some of these limitations include:

  • Reconciliation history and reports
  • Recurring credit card charges
  • Memorized reports
  • Audit trail

Browse this article to know more about what data does and doesn't export from QBO.

 

You can still manage the transaction even if we're unable to bring it over for you. To learn more about that, please check this article: How to convert QuickBooks® Desktop data to QBO. Directly go to page 3.

 

Check out our FAQ's about importing and how to fix errors when converting in QBO: 

I'm always around to lend you a hand if you have any other inquiries. Have a good one.

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