Opening balance equity account – there are different types of QuickBooks transactions that can be recorded into an account called opening balance equity even if the client does not know this “behind the scenes” accounting.

One of the most common cause of having a balance in opening balance equity is an incorrect bank reconciliation. Some clients will have a difference in the bank reconciliation between what is in QuickBooks and what cleared the bank statement. Instead of looking for the difference, some clients are too eager to press the Reconcile Now button and let QuickBooks magically make the reconciliation work. What they do not know is that QuickBooks makes an entry to opening balance equity which really does not “fix” the error. The real error could be that the client did not check off one check and it will appear outstanding from now on as if it never cleared the bank. Or sometimes a check clears for a different amount than what was written so a journal entry needs to be created to correct the difference.

An additional common cause of having a balance in the opening balance equity account is from entering the beginning balance of inventory. A client will enter in the quantity on hand and the dollar value when setting up a new inventory item. The client thinks that the inventory is now accurate. However, the actual transaction is a debit to inventory and a credit to opening balance equity. The real transaction should be debit to inventory and a credit to accounts payable if you enter a bill or a debit to inventory and credit to checking if writing a check. When the client enters the bill or check to record the inventory that was ordered, s/he is entering inventory a second time without realizing it. Then, when it’s too late at the end of the year inventory seems way out of whack and the client has no idea how it got that way or how to fix it. So when entering a new inventory item, make sure to keep the opening on hand quantity and value blank. Inventory will properly be recorded as soon as you enter your bill or write a check for the goods purchased.

Another mysterious account that QuickBooks creates is called uncategorized income. This is created when a client creates a new customer and enters an amount in the Opening Balance field. Behind the scenes QuickBooks enters an invoice which debits accounts receivable and credits uncategorized income. Then, the client enters in the old invoice not realizing QuickBooks entered one too. This causes the invoice to not only be entered twice, but the revenue account is inaccurate on the QuickBooks created invoice. A client should not use the opening balance field when creating new customers.

A third account that QuickBooks creates is called uncategorized expenses. Similar to customers, when a client enters an opening balance amount for the vendor QuickBooks enters a bill into the system. Behind the scenes the accounting software program is debiting uncategorized expenses and crediting accounts payable. Now, the client may not use the bill feature in QuickBooks and instead writes a check for the amount of the bill owed. This records the bill two times, but the client is unaware of the QuickBooks created bill because s/he does not generate an A/P aging report. For clients who normally enter bills in before paying them, they will see two bills for the same vendor. A client should not use the opening balance field when creating new vendors.