Opening Balance Equity - Accounting Software Secrets
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Opening Balance Equity

Opening Balance Equity

Opening Balance Equity – Special Considerations


Opening Balance Equity is the account that is used for the other side of the entry when beginning balances are entered when setting up new accounts.  Once transactions have been entered into an account, it is no longer possible to use this method. The advantage to entering the balances in this way is that it is easier to reconcile Opening Balance Equity through the register.  If a journal entry method is used, there are challenges with entering the Bank, Accounts Receivable, and Accounts Payable type accounts.  This situation is further complicated if there is a data entry error and Retained Earnings was used as the “off-set” to the entry.  Retained Earnings does not have a register nor an easy way to create a report to show activity. Once the Opening Balance Equity account has been reconciled (i.e. equal to Retained Earnings on the source documents) an entry onto the register can be created to transfer the balance into Retained Earnings.


Following the entry and reconciliation of the beginning balances, this account should always be zero.  If an amount is entered into this account, it usually the result of one of the following situations:


  1. 1.        The difference in the bank reconciliation was not zero, and the option was then chosen to let the software create an entry to correct the bank account.
  2. 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.
  3. 3.        A transaction was coded directly to this account, rather than the proper general ledger account.


This account should be analyzed and appropriate entries made to reconcile the balance to zero.  It is also quite possible that changes need to be made in the procedures used by the business to eliminate the problem in the future.



More information on this topic

Chart of Accounts