QuickBooks Tips & Tricks - Opening Balance Equity
1. The difference in the reconciliation of a balance sheet account was not zero, and the option was then chosen to let the software create an entry to correct the account. This problem is usually quite apparent because the journal entry has a memo says balance adjustment. To correct the error, either make an entry in the register (or a journal entry) to reclassify the amount to an appropriate account, or double click on the entry in the register to change it directly. If the amount is minor, it is probably not worth spending too much time researching it, if the amount is not immaterial, going to the reconciliation report for the appropriate time period (a printed copy of the full reconcilation in the older versions, or, in the newer versions, it is possible to print old reconciliation reports from within the software) and compare it to the bank statement to discover why the reconciliation difference was not zero.
2. A new account was created, and the transactional data was not entered, but rather the beginning balance was entered when creating the new account. This happens quite frequently with loan accounts. The client will know there is a new loan, and when creating the new liability account will enter the amount borrowed at the bottom of
the new account screen as the beginning balance as of the date of the loan. This creates an entry with a debit to Opening Balance Equity and a credit to the loan account. The loan looks correct, but the debit is not. Typically the loan was for a fixed asset, or as working capital being deposited into the bank account. The result can often become complicated. For example, if it was a working capital loan, the deposit into the bank account may be entered as income in error distorting the Profit and Loss report as well. When a new account is created after the original set up of a new file, the transaction needs to be entered, not just a balance on the new account screen.
3. A transaction was coded directly to this account, rather than the proper general ledger account. Occassionally this account will be used as a "suspense" or "ask accountant" account. Although this method is not encouraged, assuming the accountant is aware of the account and understands that it should be zero, it can be used as a "holding" account for unusual transactions that need to be reconciled.
As a resource for this and other questions, submit a question via "Ask the Expert" or attend our free, monthly discussion forum tele-class.Source: www.4luvofbiz.com