Starting Balance Equity

Hi,
I’ve been struggling with this for a very long time and I was hoping someone might be able to explain it to me. I’ve already ready this thread and ones like it: Starting balance equity, however I don’t seem to understand what the solution is.

I have been doing my books for two years and just switched to Manager this year. I set a start date of June 1 2017 and then through the “starting balance” section entered an opening balance for my chequing account of $11,119.32 as of June 1 2017. By doing this, an entry was made to open the chequing account as of June 1, 2017, but an entry was also made under “Starting Balance Equity” for $11,119.32. This amount has not disappeared. I have finished my year now at May 31, 2018 and everything else is balanced, but the account for “starting balance equity” still has a balance of $11,119.32 (and more for other accounts that I had started). From reading the other threads, I have gathered that this means an error was made, but I don’t see how. When I started the business years ago, the starting journal entry was DR chequing CR common stock. But I’m not starting up a business at this point, so I’m not sure how to DR chequing without making another entry that would be inaccurate. What do I credit?

Maybe not so coincidentally, I’m trying to figure out how to enter a starting balance for Retained Earnings (my 2017 balance) and I can’t do it. When you bring an ongoing business into Manager, how do you enter these starting figures without making another entry that will inaccurately unbalance the rest?

I’m so very confused and any assistance would be greatly appreciated. I’ve found that my accountant is most unwilling to assist with this and wants me to go buy quickbooks.

Forget about journal entries. Just enter the starting balance as per the Guide: Manager Cloud. Manager takes care of the rest.

Same Guide, same approach.

Thanks for the reply. I did follow the guide completely when I set it up. There were no unpaid invoices or transactions as of June 1, so I’m still not sure what’s going on.

When I try to enter a starting balance for retained earnings, I don’t have the option. Am I missing something?

You need to enter under Starting Balances > “Edit” Net Profit (Loss) a credit value of 2301.32

Thank you Brucanna. I did that and the “starting balance” entry is gone, but my Net Profit is now inaccurately off by $2301.32.

Also, how do I enter my retained earnings starting balance? The only options I have are common stock and dividend declared and net profit. --> I added another account called Shareholder Equity and filled it with my starting balance for retained earnings.

My equity section should say:
Common Stock $10
Shareholder Equity $422
Dividend Declared $40171.63
Net Profit 28325.02
Retained Earnings $11,414.61

But due to the starting balances adjusting my net profit, my equity looks like this:

I have been reluctant to comment about this, assuming your accountant had dictated the structure of your chart of accounts. But your equity structure looks strange to me:

  • Retained earnings is normally a single account, not a group. It is where the net of inflows, outflows, dividends, distributions, and the like resides until being transferred elsewhere. A dividend is a current payment out of retained earnings, not an account in a Retained Earnings group. So I wonder why you are trying to accumulate declared dividends. I am not saying it is wrong, just that it strikes me as unusual.
  • Net profit belongs on the Profit and Loss Statement, not the balance sheet. So I can’t figure out why you have your Net Profit (Loss) account under Retained earnings. Net profit is one of the things that goes into Retained earnings, awaiting distribution. But it seems strange to show it this way on the balance sheet.
  • One thing I wonder is which of these was originally the default Retained earnings account. You cannot delete that account, as Manager has many functional interactions with it automatically. You must have renamed it. Since it is hard-coded, depending on where you now have the renamed account, things could be happening you did not expect.

Getting back to basics, the balance sheet of your previous system dated May 31, 2017 should be reflected by the Starting Balances in Manager dated June 1, 2017. This means that if the May 31 Balance Sheet had an account with a balance, then there must be an equal account with the same balance in Managers Starting Balances. That match up will then confirm the starting point with Manager.

Once you can confirm that your Balance Sheet and Starting Balances are an exact match then we can discuss other outstanding issues, but remembering that any separated Retained Earnings balance and Net Profit (Loss) balance as at May 31 becomes a single Retained Earning balance as at June 1, assuming that June 1 is the start of your financial year, if not then they will be two balances.

Thank you so much for both of your replies! Thanks to both of your assistance I finally fixed my problems! I had been killing myself for days trying to figure this out, so I really do appreciate the help.

I took another look at the 2017 balance sheet and realized that for some reason my accountant declared depreciation on some fixed assets like computer hardware for the tax return but did not include an entry for the asset on the balance sheet. I had entered the starting balance for the assets under assets. It appears as though he made a mistake when doing the asset section of the balance sheet, but I don’t know how to fix it, so I will just keep the computer hardware off the balance sheet. I have adjusted my books to remove the assets completely and it no longer has the starting balance issue! Thank you so much. I was so stumped by that.

In regards to the Equity section of my balance sheet - in my experience, the equity section on a tax return for a corporation always looks like this:
Common Stock $10
Retained Earnings 2017 $422
Dividends Declared -$40,171.63
Net Profit (Loss) $29,066.02
Retained Earnings 2018 -$10,683.61
Total Shareholder’s Equity -$10,673.61

When I started with Manager I didn’t realize that the retained earnings account basically includes all of these items in one account, so I tried to build this into Manager with subaccounts and renaming, because I found that the alternative option didn’t provide enough detail and looked a lot like a sole proprietorship.
Equity: $10,673.61
Capital account $10
Retained Earnings -$10,683.61

However, after I was faced with an inaccurate Retained Earnings balance, but a correct Shareholder’s Equity balance, I realized the error of my ways.

So I went to my chart of accounts and saw a notation that the Net Profit (Loss) account was the retained earnings account (which I must have made a sub category). I renamed it and deleted the Dividend account. I then deleted it’s parent account, and it was back to being a retained earnings account. I entered a starting balance for it and now I’m good to go!

Thank you so very much!

There is no need to do this. See this Guide on migrating fixed assets from prior accounting systems: Manager Cloud. Of course, if the prior system was wrong, you should correct it before migration. Otherwise, you’ll have incorrect numbers again. Even if the asset has a zero book value, you should still have it listed if it remains in use. If you leave it out, you’ll have trouble downstream when it comes time to dispose of it.

My whole issue originated because I had entered the asset into Manager which created a “starting balance equity” problem because it wasn’t included in the 2017 balance sheet. I wouldn’t know how to account for it (I know how to migrate it) at this point without giving it a zero balance like you said. But why would entering an asset with a zero balance assist me in the future? Couldn’t I just enter it then?

If your books are balanced now only because you’ve left it out, they will become unbalanced in the future if you add it then. Meanwhile, you will have misstated your position as long as the asset is in use. Unless it already has a zero book value, you will not be able to record depreciation on it. I don’t know your jurisdiction, but it is possible there would be implications for property tax in the interim.

The fact remains that your prior records, according to your statements, are incorrect. Better to fix them now than to try to patch things up later when memories are worse and other, unexpected impacts also have to be addressed.

No, the books wont become unbalanced if added in the future. If the asset depreciation balance is currently missing from the Balance Sheet then it would also mean that the Profit & Loss depreciation expense account has never received that charge.

So in adding that asset depreciation opening balance later would only mean that you also need to make an adjustment to the Retained Earning account for that missing prior period P&L charge - so everything remains in balance.

Correcting the Balance Sheet / Retained Earning would just the eliminate that timing difference between the tax return and the book of accounts.

This was my point. Perhaps I did not express it well. The information I meant to convey was that adding a starting balance later would put @thyguib right back in the situation that started this topic, where unbalanced entries were creating a balance in Starting balance equity. In other words, the problem would only be delayed unless the correct entries were made…so why not make them now and know the accounts are correct?