and now we're finally going to explain what is opening balanced equity opening balanced equity
is an account that's only used by the computer it's not an account that you will see mentioned
in a college accounting textbook it is simply the difference between the debit balances and
credit balances in the general ledger of a company who's starting to use QuickBooks it
should be the same as the total owners equity of the company before QuickBooks after inputting all
of the other account balances opening balance equity should be adjusted with journal entries
to distribute the owner's equity to the owners capital account for example let's imagine that
this is a trial balance of a company that is just beginning to use QuickBooks notice there are only
five account balances with five accounts and the chart of accounts listed here and we did
not include any of the owner's equity accounts that's because as you start setting up the file
QuickBooks will create the opening balance equity account as you put in the beginning balances well
how much should the opening balance equity be after we put in the beginning balances well it's
very simple the opening balance equity should be the difference between the debits and the
credits whatever that difference is that how much opening balance equity should be and that's what
QuickBooks will put as you put in the beginning balances QuickBooks adds value to opening balance
equity when you input beginning balances one by one so as we put in these balances one by one
opening balance equity will get bigger and bigger and when we're finished putting in the other five
opening balances that means that opening balance equity will finish at exactly twenty thousand
now this is the chart of accounts that I have created for this example company notice the
accounts listed in capital letters are the five accounts that we had in our in our example that
I showed a minute ago one two three four five and the other accounts and lowercase are the accounts
that QuickBooks automatically put in the chart of accounts for industry type I chose other none
but when it came to the company type I chose partnership so that you can see how we would
distribute the opening balance equity after we put in the beginning balances it's very simple to put
in the beginning balance choose the account click edit account and down here click enter
opening balance now I happen to remember that the cash and bank opening balance is $10,000
and statement ending date I think that's the date that you're actually beginning to use QuickBooks
so let's imagine it's June 1 now after I click OK and click Save and close you can see the computer
put $10,000 in the bank account as I mentioned but it also made the balance of opening balance
equity 10,000 and you can confirm this by opening up to trial balance let's put in supplies account
and an account enter opening balance I believe supplies were two thousand dollars so we'll put
here two thousand for supplies as of June 1 the date were switching over to QuickBooks can you
guess what the balance of opening balance equity will be after we save this that's right twelve
thousand because we put ten thousand and cash and two thousand and supplies and again the trial
balance confirms all the numbers what's the third number equipment 28,000 click on equipment account
edit opening balance 28 thousand a heads of June 1 click OK save and close now opening balance equity
has 40,000 wow it looks like it's getting bigger however there are 2 liabilities that we have to
put let's put for accounts payable edit opening balance I believe it was 5,000 yes it was 5,000
as of the date we switch to QuickBooks which in this case is June 1 notice opening balance
equity decreased because we added the balance of a liability now what we have to do is add
the bank loan for 15,000 bank loan edit opening balance 15,000 as of the conversion date which
is June 1 and now the opening balance equity is exactly as what we expected it to be 20,000 and
again we can confirm that by opening up the trial balance now we will do the last step in the setup
by distributing the opening balance equity to the partners and we'll do this by making
a journal entry should be very simple because opening balance equity is a very round number
so we click company make journal entry and the date of the journal entry should be the date of
the conversion which in this example is June 1 now we're going to debit opening balance equity
for half the amount and we're going to credit the first partner's capital partner 1 equity ok
now save and new and do the same thing we again debit opening balance equity and we
credit partner twos equity and save and close now you can see from the trial balance opening
balance equity is zero because the equity has been distributed to the individual partners accounts