If you are uploading your desktop QuickBooks data file to QuickBooks Online, then you have to set up beginning balances in QuickBooks Online.
Actually QuickBooks Online will do much of this for you. This includes transferring all of your balance sheet accounts over. The issue as Jeff points out in his Question in our www.schoolofbookkeeping.com Answers Forum is that it may not be clear what that “Opening Balance Equity account really is all about.
When you are setting up beginning balances in QuickBooks Online, just like the desktop you have to transfer the assets and the liabilities of the company as of the balance sheet date. This means the net worth of the company will be the same as it was, but since we are choosing a new starting point for the balance sheet, the entire cumulative history of the company balance sheet has to be transferred in as of that date. In other words, the beginning balances in QuickBooks online will need to be set up and that means the offset for all of this has to be in the equity section of the balance sheet.
What the readers of the financial statements need to know
At the end of the day the bookkeeping has to be prepared in a way that financial statements can be presented to readers. The readers of the financial statements need to be able to understand what the financial statements are telling them about the financial position of the company as of any given balance sheet date. This means that if we’re setting up beginning balances in QuickBooks Online based on an existing company we should communicate that to them. Putting all of this in Opening Balance Equity is too vague for me. I prefer to have a separate equity account for each item whose beginning balance is being transferred in. In the desktop edition I would make these each sub-accounts of opening balance equity, but as you’ll see in the video you can’t do this with beginning balances in QuickBooks Online.
Do I leave the beginning balances in QuickBooks Online where they are or do something with them?
I leave these balances in their respective equity account for the duration of the calendar year when I posted them. Then on the 1st of the following year I post an entry to close out the beginning balances in QuickBooks Online to Retained Earnings.
All roads lead back to retained earnings
Retained earnings is where transactions go to die. In fact when we set up those beginning balances in QuickBooks Online they represent things that were already either in retained earnings or on their way there. We just want to show a clear picture of what we’re doing here and then send the transactions home. For this reason when we set up beginning balances in QuickBooks Online we show them as individual equity line items on the balance sheet. This makes it really clean and clear. Then on the first day of the following year we close it all out to retained earnings.
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