Quickbooks Opening Balance Equity: A Complete Guide 

QuickBooks is an accounting software that can handle all the financial transactions of a company. Quickbooks also provide a test drive version from where you can check out all the tools of Quickbooks Online. While using the software you might encounter Quickbooks Opening Balance Equity and if you are new to Quickbooks you might face difficulty in understanding this concept. But it is very important for handling accounts in quickbooks and making a proper and accurate financial statement so, let’s take an overview of opening balance equity. 

Introduction to Quickbooks Opening Balance Equity 

So, let’s start with the introduction and understand how opening balance equity helps us in maintaining proper accounts.

What is Opening Balance Equity in QuickBooks

It is an auto-generated account created by the software. It is a type of equity account you can access from the chart of accounts. It is a temporary account but still, you have to close it otherwise it will generate wrong entries in the record which will create a misleading balance sheet. To make transparent and accurate financial statements you have to close this account. This account is created to reconcile the differences between the bank statements and the company’s financial statements. At the beginning of the new financial year, the balance of QuickBooks opening Balance equity tells the difference between the assets and liabilities of the company.

Quickbooks Opening Balance Equity

Why does Quickbooks use Opening Balance Equity?

When you set up an owner’s bank account in Quickbooks it will transfer all the funds to opening a Balance equity account because if you don’t allocate funds then it will create complications in financial statements. It is important to make accurate accounting records.

Work on Opening Balance Equity in QuickBooks

Till now it is clear that this account is set up automatically if there are some prior funds in the company’s account.

The basic accounting principle is :

Assets= Liabilities+ Equity

And to make the balance between Assets and liabilities with equity Quickbooks introduce Opening balance equity. After recording all the entries, the total opening balance equity should be equal to the sum of all beginning equity accounts listed in the prior account balances if not then recheck the initial account balance entries for errors.  After entering all initial account balances, the final amount of the opening balance equity account is moved to the normal equity accounts, like common stock. After that, you cannot access the opening balance equity.

Need of Quickbooks Opening Balance Equity

There are various reasons for a opening balance equity account:

  • Data file: It is used to create a data file for new businesses with opening balances. When you start a new business you have some assets or loans to start your business to record these transactions, intuit Quickbooks transfer these data into the opening Balance equity.
  • Starting of the new financial year: When a new financial year starts the balance of the previous year will get transferred to the 
  • For adding new items to the charts of the account: While adding a new item like inventory to the charts of the account which need to specify an opening balance then the opening Balance equity will reflect the corresponding entry.  
  • New vendor or customer: While adding a new customer or vendor entry who has some value balances and doesn’t have any corresponding balances in this case Quickbooks may create entries in the opening Balance equity.
  • Business Merge: While merging the business you also merge the financial records and there could be some discrepancies while merging:
    1. Difference of account balances or accounting methods.
    2. Valuation adjustments
    3. Changes made to correct the financial records of merging companies.

Avoid Mistakes

There are some common mistakes that need to be avoided like:

  1. Short-period usage: Opening Balance equity should only be used for a shorter period of time. But it is a very common practice where businesses carry a balance for a very long period.
  2. Incorrect bank reconciliation: Avoid incorrect bank reconciliation adjustments as they lead to a residual balance on your opening balance equity.
  3. The software will rearrange the opening Balance equity balance if the amount in the journal accounting entry does not support the amount in the bank statement and you close it.

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Zero Opening Balance Equity

If there is some balance left in your opening balance equity account it means that there are still some entries that need your attention. A zero-balance equity account makes your balance sheet look more professional.

Having funds in opening Balance equity while setting up or after making some adjustments is a normal thing you just have some funds that need to be allocated to some account. Whereas if there are some complex errors occur then this could be a serious issue as it will be reflected in your balance sheet. In such cases, it’s important to find out the problem and correct it.  It is very important that you have a zero opening balance equity because without that there will be problems in financial reports and it will be hard to find out the financial condition of a company. This can lead investors or lenders to make wrong decisions. It also means that the company is breaking the rules by not maintaining proper financial records which can put you in legal trouble.  

How to zero out Opening Balance Equity in QuickBooks

It is a common question about how to clear quickbooks Opening Balance equity, simple  ways to close accounts is by making journal entries:

  1. Retained earnings: In case the business is a corporation, change the balance equity to retained earnings.
  2. Owner’s equity: In the case of a sole proprietorship, change the balance equity to owner’s equity.

In case of a positive balance, make an entry on the debit side in the opening balance equity account and a credit entry to the owner’s equity account or retained earnings account. Or in case of a negative balance, make an entry on the credit side and debit to the owner’s equity account or retained earnings account.


QuickBooks Opening balance equity is an account made by the software automatically while setting up the bank account of the owner or when a new financial year begins. It contains funds already present in the bank account of the owner(may be required for starting the business). It is a good practice to have a zero balance account to have an accurate financial report the best way to do that is to transfer the funds into the appropriate equity accounts.

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