Question

You are reviewing the Client Overview tab for a new client to determine the scope of a bookkeeping clean-up engagement. You notice that there is a large amount in the Opening Balance Equity account. Which 3 reasons could be causing this balance?

Answer 1

There could be several reasons behind the presence of large amounts of opening balance in an equity account.  

Explanation:

• One of the major reasons is when a company issues more than the required common stock this results in large sums of opening balance in any equity account.

 

• Another main reason could be that the company might have issued more preference stock to get more investors.  

• Lastly, due to the non-expansion of the company and keeping previously earned profits with retained earnings.