Historical adjustment showing as liability

[e s t r e l l a]

I'm doing the bookkeeping for a small U.S. business that had no formal records in the previous years. Like for my other clients, one of the first things I did was enter the opening cash balance, the system auto-posted a credit to "historical adjustment" under liabilities, which doesn't make sense. Should this entry be going to the owner's equity or retained earnings instead? I'm not sure what's happening.

 

[Economist_]

Most small businesses should treat that opening balance as owner's equity, not liabilities. "Historical adjustment" is just lazy software labeling, it's masking what should properly reflect initial owner investment or retained earnings.

 

[charlienotputh]

You're right, the offset should typically go to owner's equity or retained earnings, not liabilities. Posting it as a historical adjustment under liabilities can misstate the financials, manually adjust that entry to credit retained earnings or equity to reflect that the funds belong to the owner and not a liability

 

[chrishemsnorth]

I agree with @charlienotputh whole heartedly, when setting an opening cash balance without prior records, the offset usually belongs there, not liabilities, the historical adjustments thing can get you confused, I had a colleague be in a whole entanglement once