16 Nov Opening Balances
Entering the opening balance and “as of” date
One way of entering the opening balance is on the new account set up screen. The other side of the entry when this method is used is Opening Balance Equity. The advantage to entering the balances for Balance Sheet accounts in this way is that it is easier to reconcile Opening Balance Equity through the register. If a journal entry is entered using Retained Earnings, that account does not have a register or an easy way to create a report to show activity. In addition, the accounts listed below require additional information not easily handled through a journal entry. 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.
The “as of” date should be the same date of the source documents. This should be the last date of the prior period. For example, if QuickBooks is to be used starting the beginning of 2002, the as of date should be 12/31/01.
The documentation from QuickBooks often suggests using the start date (i.e. 1/1/03 in our example) but it is the opinion of this author that then end of the previous period is preferred over the beginning of the current period to preserve a clean Balance Sheet for future reference. Some businesses, for example, may have activity as of 1/1 or that date may be used for previous year transactions that are received subsequent to the reconciliation of the previous year balances. Using the end of the previous year’s date eliminated the potential problem.
The exceptions to this method are:
Income and Expense Accounts