What should you do if you are working on a massive QuickBooks Online cleanup and you come across a mysterious balance in an account called Opening Balance Equity on the balance sheet? You probably won’t recall ever adding that account to QuickBooks Online, or categorizing any transactions to/from it. So what is it, and why is it showing up on your balance sheet? Keep reading and I’ll answer those questions and discuss how to clean up Opening Balance Equity in QuickBooks Online.
Click on the video below to watch: How to clean up Opening Balance Equity in QuickBooks Online
What is Opening Balance Equity?
Let’s first define what Opening Balance Equity is, and then we will look at what types of transactions affect it’s balance in QuickBooks Online.
Opening Balanced Equity is a holding account used by QuickBooks Online.
Balances are added to Opening Balance Equity when opening balances are entered in QuickBooks. Examples include entering opening balances when setting up a new account in the chart of accounts, entering inventory starting quantities, and deleting a balance sheet account with a balance.
Click on the video links below to see a few examples of actions that affect Opening Balance Equity in QuickBooks Online:
- [1:15 in the video]: Connecting bank feeds for the first time, you will see an entry made by QuickBooks to enter an opening balance for that account.
- [1:31 in the video]: Adding an inventory item and adding an initial quantity on hand and a date.
- [1:48 in the video]: Inactivating an account in the chart of accounts that still has a balance.
Clean up tips for the Opening Balance Equity account in QuickBooks Online
Here are a few important things to keep in mind when cleaning up the Opening Balance Equity account in QuickBooks Online. In a clean set of books, there should be no balance in the opening balance equity. It is not uncommon, however, to see a balance in this account when performing a clean up of QuickBooks Online. A typical opening balance equity account may look like the following example:
In my linked video, I take a closer look at an example Opening Balance Equity account, and where a few of the transactions come from. Once we see where they came from, we need to figure out what is the best way to clean up each transaction, since most should not remain categorized to Opening Balance Equity. Click on the links below to see transaction examples from the Opening Balance Equity account:
- [3:04 in the video]: A journal entry made by QuickBooks to record the beginning balance for a fixed asset.
- [4:29 in the video]: An inventory cost adjustment occurring mid-year.
- [5:16 in the video]: A balance sheet account that still had an account balance and was deleted. I will also show you step-by-step how to re-activate the account and clean up the transaction that hit the Opening Balance Equity account.
Closing
I hope this overview of how to clean up Opening Balance Equity in QuickBooks Online helps next time you encounter a mysterious OBE account balance on your balance sheet. If you’d like to learn more on QuickBooks Online cleanup topics, I’ve got you covered. There is a category on this site specifically for my blog posts related to QBO Cleanup. Next time you’re on YouTube, check out my QuickBooks Online cleanup & diagnosis playlist on my 5 Minute Bookkeeping Channel. And finally, if you are working on a QuickBooks Online cleanup and need a checklist, you can use the following link to purchase my own: QBO Colossal Cleanup Checklist.
Stay tuned for more QuickBooks Online cleanup topics!