16 Nov Exceptions
Opening Balance Exceptions
If the opening balance option is used when creating the accounts, the other side of the entry when this method is used is Opening Balance Equity.
The only accounts that do not work well using the opening balance method are detailed below:
· Bank Accounts – To make the bank reconciliation process easier, it is recommended that the beginning balance entered be the ending bank statement balance from the previous period. Then enter the outstanding checks and deposits in transit individually into the register (coded to Opening Balance Equity) to arrive at the adjusted balance from the previous period. It is possible to enter the transactions without a “check number” or “payee name” to save time. To save time in researching the checks if they do not clear, however, the additional information may prove helpful.
· Accounts Receivable – To permit proper aging and customer assignment, each outstanding invoice should be entered individually using the appropriate date (i.e. date from the previous period) and invoice number. To streamline the process, consider creating one “begin bal” item coded to opening balance equity. Sales tax, inventory, etc will be set up based on the appropriate beginning balance for those accounts so using the specific items is not the preferred way. The only exception is if the business is cash basis and the sales are strictly income (no sales tax, customer deposits, inventory, etc). Using the income item will preserve cash versus accrual statements for the beginning balances. Cash versus Accrual statements are beyond the scope of material presented here.
· Inventory – amounts held as inventory as of the start date for the QuickBooks file should be entered by the item not by the account in total. Otherwise, the entries to relieve inventory by item may be incorrect and the detail reports will not match the general ledger. The individual item count and related value can be entered as the items are created, or as one entry through the adjust quantity/value on hand screen. If the later option is chosen, be sure to check the box at the bottom so the value of each item appears on the screen (this is the total for all the items; i.e. 10 items at $10 each would show a value of $100). When entering the inventory adjustment, an error message will appear when the account for opening balance equity is chosen because it is not an income or expense account. Once the warning is acknowledged the software will permit using the opening balance equity account. Inventory specific issues are beyond the scope of these materials.
· Accounts Payable – To permit proper aging and vendor assignment, each outstanding bill should be entered individually using the appropriate date and coded to opening balance equity (or use the begin bal item suggested with Accounts Receivable above).
· Income and Expense Accounts – If the QuickBooks file is established mid-year, a journal entry will be necessary to enter the beginning income and expense account balances. This net income or loss amount will be entered using Opening Balance Equity. If the QuickBooks file is established at year-end, include the profit and loss in the Retained Earnings adjustment.