This article deals with the purpose and usage of an equity account called “Opening Balance Equity.”

The Opening Balance Equity account is primarily going to be a bookkeeping software invention and thus is automatically created by a bookkeeping software (QuickBooks) whenever you begin a new company bookkeeping (accounting) file and begin posting banking and/or credit account activities into this file.

This equity account is not always used as there may never be a need for it; however, it can be utilized for the following popular reasons:

• Your business bank or credit account already had a pre-existing balance prior to the usage of the new bookkeeping software, thus the software can automatically (via the bank feeds module) put this pre-existing balance into the Opening Balance Equity account, until you are ready to backtrack and resolve in your books later.
• The bank or credit account was already being utilized for purposes outside of your business (such as for personal reasons only) and now you decided to make this bank or credit account a business account only and thus it already had a personal pre-existing balance that you need to account for in your books.
• Your business was already utilizing a different bookkeeping software, prior to migrating over to a new bookkeeping software. Obviously, the business books will already have a history and thus some of this history may need to be, on a temporary basis, be put into the Opening Balance Equity account until you can divvy out to all the appropriate accounts later in your books. There are different ways of handling this migration scenario and you do not even have to utilize the Opening Balance Equity account here.

Overall, I would highly suggest not leaving a balance in the Opening Balance Equity account as this balance in here will show in your Balance Sheet report and may draw questions from future readers of this report. The purpose of this equity account is only for temporary usage until you are ready to divvy out to more appropriate and befitting accounts and thus should really only have a zero balance when you create the Balance Sheet report.

Note: AccuraBooks is a bookkeeping firm only, so please consult with your C.P.A. for verification and clarification about the contents of this article.