When you are setting up QuickBooks or QuickBooks Online, you need to setup your chart of accounts, your bank accounts, and any debts. After you finish that up, usually you feel like the mission has been accomplished. But where did that Opening Balance Equity account come from? Long story short, QuickBooks automatically adds that account to make your Balance Sheet balance (Assets = Liabilities + Equity).
My recommendation is to finish the setup process by zeroing out this account. If you’re a church, the equity section include:
- General Fund: This is the unrestricted money. If it’s positive, it means you have money in the bank that can be used for operations. If it’s negative, it means you are borrowing from restricted funds. For the General Fund, usually you need to add together Retained Earnings (which I usually rename) as well as Net Income (reported on the very bottom of the Balance Sheet).
- Restricted Funds: Sometimes I split this up between those that are Donor Restricted and those that are Board Designated. Donor Restricted funds are those that need to be spent according to the wishes of the donor. Board Designated funds are usually unrestricted funds the church board wants to set aside for a specific purpose.
- Investment in Fixed Assets: If your church has property and equipment on the books, I would offset this with a special equity account named Investment in Fixed Assets. The balance of this account equals the total of the Fixed Assets less Accumulated Depreciation and related Liabilities (e.g., a mortgage).
In the video I walk through an example. In short, what needs to be entered in the Journal Entry:
- Enter Restricted Balances: Enter the amounts for each of the Donor Restricted and Board Designated Funds. Often these match up with specific assets on the balance sheet but may also be lumped in the main checking account. These will almost always be Credits.
- Enter the Investment in Fixed Assets: This should be equal to Fixed Assets (buildings, equipment, etc) less Accumulated Depreciation (which is rarely used by churches) less any related debts on the fixed assets. This will almost always be a Credit.
- Zero out Opening Balance Equity: Whatever the balance is, enter that number in as a Debit.
- Balance to Retained Earnings: Chances are the Journal Entry won’t balance. Whatever amount you need to balance this entry, debit or credit that amount to Retained Earnings. I usually rename this account to General Fund Beginning Balance as it represents the beginning balance of the General Fund as of January 1st.
Useful Links
- My Post on handling donor-restricted funds in QBO: https://jctaccounting.com/2019/12/02/how-can-you-handle-donor-restricted-funds-in-quickbooks/