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Accounting Basics Part 3: How to Enter Opening Balances in QuickBooks

Continuing on from last week when we set up the Chart of Accounts, this post will help you understand how to enter opening balances in QuickBooks. This post will carry on from the prior post, so if you aren’t at this point, view the previous posts under the Accounting category to catch up. The idea behind setting up the opening balance is that you have started your QuickBooks file as of a certain date, and already have assets or liabilities associated with your business. You don’t have to go back to the very beginning when you opened your bank account or bought your first computers or vehicles for your business. Instead, you take the current balances for the bank accounts, assets, and liabilities as of your start date and enter them into QuickBooks. So what date should you use as your start date? If you have just started your business, you should use the date when you incorporated your business or opened your bank account or transferred your own money to purchase business assets. Whenever your first transaction occurred, that should be when you open your QuickBooks. If you do this, then there is no need to go through the following steps. If this is not the case in your situation, then when should you start your QuickBooks file? My recommendation would be to start your file as of the first day of the year. This will help you with both the opening balances and with your current year’s tax return.

Step 1: Opening Balance Amounts

So where do you get your opening balance amounts? Your prior year’s tax return is the best place to get this information. Ask your accountant or review your tax return to find the balance sheet amounts. These amounts should be the balances in your accounts as of Dec. 31, 20XX and will be the amounts that you will enter into your new QuickBooks file.

Step 2: General Journal Entry

In QuickBooks, go to Company -> Make General Journal Entry (as shown below)

Take the amounts shown on your tax return and enter them into the Journal Entry with the Assets as Debits and the Liabilities and Equity accounts as Credits. Keep in mind that there are asset accounts that will be credits and liability accounts that will be debits. The most common are Accumulated Depreciation and Discounts on Notes/Bonds Payable. These should be shown clearly on the Balance Sheet, so you should enter it as it is shown on the tax return. The transaction will balance as it is being pulled off the Balance Sheet, but ensure that the equity balance account goes to the Opening Balance Equity account. An example of this journal entry is as follows:

It is also a good idea to enter a note on the memo line for future reference or for your accountant to know where the amounts came from.

Step 3: Verify the Balance Sheet Amounts

In order to verify that you entered the journal entry correctly, you will want to run a Balance Sheet as of Jan. 1, 20XX. To do so, go to Reports -> Company & Financial -> Balance Sheet Standard (shown below)

Modify the date to Jan. 1, 20XX. View the Balance Sheet (shown below) and compare it with the balances shown on your tax return.

If the balances are off, find the error and adjust the journal entry accordingly. If they are correct, then congratulations! You have successfully set up the opening balances in your QuickBooks file!

I hope this little tutorial helped you in your understanding of Accounting, how to use QuickBooks, and how to set up your company file. Let me know if you have any questions or troubles with what I have outlined here and I would be happy to help you out. Check back in next week as I take you through the next step of entering data into your file.

Keep Reaching!

Mark

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