What is Retained Earnings and Opening Balance Equity?
In our blog series 5 of 5, common Quickbooks terms – What is Retained Earnings and Opening Balance Equity? These are special equity accounts created by QuickBooks and exist on the balance sheet.
- Retained Earnings – This account is used to track all profits for prior years minus any distributions or dividends. This account should be avoided posting any transactions to unless you are making prior year write offs or have received adjusting entries from your CPA. It otherwise gets its data from earnings on the profit and loss report.
- Opening Balance Equity – This account gets posted to when you create a new chart of account for a loan or item that you enter a opening balance for in the set up of the account in QuickBooks. This account should be closed out to retained earnings and not carry a balance.
The above picture is from data in QuickBooks Online. The retained earnings account is for all prior years profit. The net income is for the current year. The opening balance equity should be closed out to retained earnings.
This wraps up our final installment in the blog series: common terms. We enjoyed writing the posts and hope you have learned something. Please contact us or comment if you have any questions.
12 thoughts on “Blog Series 5 of 5: Common QuickBooks Terms – What is Retained Earnings and Opening Balance Equity”
I want to close out opening balance equity to retained earnings and not leave a balance. Tell me when and how you would do this?
Sorry for the delay Kenneth, for some reason your post was marked as spam. I am sure you have found out by now, you can create a journal entry for the balance in that account and move it to retained earnings. I don’t know if the number that you have is a positive or negative number but try this; debit the balance you want to make to zero and put the credit to retained earnings. Check the balance sheet report after the entry, if the amount is not zero, go back in and edit the entry you made, by flipping the debit/credit columns.
I have an end of year balance sheet from a previous CPA with an opening balance equity but no retained earnings listed. I started in qbo in January and put in account balances which gave me a new opening balance equity but qbo also calculated a negative retained earnings. Do I just JE my opening balance equity to retained earnings and disregard the info on last year’s balance sheet or do I somehow incorporate that as well?
Hi Courtney, yes you would zero out opening balance equity account and adjust it to retained earnings. Because balance sheet numbers roll over from year to year, the last years balances, will already be in the balance you are adjusting in the current year, so use a more recent date and adjust it as a whole. Then immediately go back to your balance sheet, and make sure it zeroed out.
At the beginning of a month (after reconciling) when I close out opening balance equity to retained earnings by recording a journal entry, is this journal entry done as an “adjusting” entry or just a normal journal entry that would not reflect on the “adjusted trial balance” report?
Hi Jackie, in my experience, an adjusting journal entry is usually given from a CPA and has to do with the tax return and tying to books trial balance. When using this option, it creates adjusting entries on the “adjusted” column of the adjusted trial balance report. I would leave that unchecked and reserve that option for when your CPA gives you adjusting entries to post.
I am cleaning up an old file by creating a new file. My opening balances begin 11/17/20. Can I apply the new opening balances (for: banks, credit cards, loans, etc…) from 11/17/20 to 12/31/20 to Retained Earnings? And everything 1/01/21, on, is left in Opening Balance until year end close out? Or can I put ALL dated opening balances to Retained Earnings? I use QB for Mac Desktop 2020 for personal finances – not business. Thanks for any clarifications you can give!
Hi Sorry for my delay, its our busy season and just now getting caught up on old emails. Hopefully you found a fix already. Opening balance equity and retained earnings are essentially the same thing, the opening balance equity is usually closed out to retained earnings. I am a picky bookkeeper when it comes to this kind of stuff. I don’t like to use the opening balance equity. I like to book what that balance represents instead of using equity. So for instance. If the $500 carryover balance that would have gone into opening balance equity account was for netflix, insurance and food, I would book it to those accounts instead. However, to answer your question, you can use opening balance equity for all of those. At year end, close out to retained earnings.
Hi, my employer’s CPA asked me to bring Opening Balance Equity account from $60,000 to $45,000 to match previous year Tax Return. So I made a JE with the difference of $15,000 with Debit Opening Balance Equity a/c & Credit Retained Earnings. Iam not sure if I credited the account correctly. Can you plz advise. Thanks
Check the balance sheet to see how the balance fell out, if the balance is correct, you did it right 🙂