James E. Moede, CPA

Specializing in Accounting Services, QuickBooks® Consulting, and Tax Preparation

    QuickBooks Mystery Account: Open Balance Equity

    Have you ever scrolled down through your company’s chart of accounts in QuickBooks and found an account called “Open balance equity”?  Have you asked “What is this account” and “why does it have an amount”?  This website article will attempt to answer these questions.

    What Is It?

     The open Balance Equity account is an account that is automatically created by QuickBooks whenever you create a company.  It is an equity account similar to Retained Earnings or Owner Capital. 

    Why is there a balance in Open Balance Equity?

    The Open Balance Equity account is basically a “plug” account used by QuickBooks to balance a transaction (basic accounting debits=credits). QuickBooks will enter a balance in the Open Balance Equity account for a couple of reasons:

    •  Beginning account balances
    •  Forced adjustments 

    In my opinion, the correct solution to the above situations

    Beginning account balances – When creating a new balance sheet account, if an amount is entered into the ‘Opening Balance’ field, QuickBooks posts the same amount to Open Balance Equity in order to balance the account. I recommend leaving this field blank. The beginning balance for a balance sheet account should be recorded as a journal entry with the offset going to one of the ‘Equity’ accounts.

    Forced adjustments – These occur when a bank reconciliation is not complete (there is still a difference between the bank and the register) and the reconciliation process is completed. QuickBooks will adjust the cash account and place an offset entry to Open Balance Equity. If the amount is immaterial, then I would post the amount in Open Balance Equity to “Bank Service Charge” or ‘Miscellaneous Expense”. If the amount is substantial, then further investigation is required to determine why the reconciliation did not work in the first place. Then the amount in Open Balance Equity can be adjusted.

    Please use this information as a general guide to assist you in using QuickBooks.  Be sure to consult the QuickBooks reference manual and/or online help for additional information.

 

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Last modified: August 22, 2008