QuickBooks: Opening Balance Equity

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Q: How does one change opening balance equity for an existing account? How does one journalize opening balance equity?

A: As shown in the video...
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Relevant Material: Opening balance equity is essential for account reconciliation. In order for one to reconcile accounts, it is important to match the opening balance equity on QuickBooks with that of bank statements and credit cards.

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Relevant Material: "Account reconciliation ensures your QuickBooks matches bank records; Opening Balance Equity (OBE) is a temporary account for initial balances that should clear to $0, representing your starting money; while Clearing Balance (or Cleared Balance) is the running total of transactions already matched in reconciliation, confirming your QuickBooks activity matches the bank's cleared transactions, crucial for accuracy. 
Account Reconciliation
  • Significance: Verifies your QuickBooks balances (bank, credit card) match your official statements, catching errors, fraud, or missed transactions, ensuring financial reports are reliable.
  • Process: You compare recorded transactions (deposits, withdrawals) against your bank statement items for a period. 
Opening Balance Equity (OBE)
  • Significance: A temporary holding account for the starting balance of assets and liabilities when you first set up QuickBooks.
  • How it Works: When you enter your bank's starting balance, QuickBooks uses OBE to balance the entry; ideally, this account should have a $0 balance after setup because all old transactions are summarized in that initial figure.
  • Problem: A balance in OBE later means something was misposted or missed; it needs to be cleared by an accountant. 
Cleared Balance
  • Significance: Shows the total of transactions (deposits/withdrawals) that have successfully matched your bank statement during reconciliation, acting as a running comparison point.
  • How it Works: It's your beginning balance minus cleared withdrawals plus cleared deposits; it helps pinpoint discrepancies during reconciliation by showing what's been accounted for. 
In Summary
  • Reconciliation is the action of matching.
  • Opening Balance Equity is the starting point (should disappear).
  • Cleared Balance is the running total of matched items during reconciliation. .." (Google) 
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