8 julio, 2024

Opening balance sheet: what it is, how to do it, example

What is the opening balance?

He opening balance it is the first entry in a company’s accounts, either when they are first started or at the start of a new fiscal year. This is the balance sheet of a company at the beginning of each accounting year.

Funds in a company’s accounts at the start of a new financial period are called opening balances, and their opening balances represent a company’s financial position the day before it began entering transactions.

Opening balances can also be important if a company transfers its accounts to a new accounting system. When this occurs, the last entry in the old accounts will become the beginning balance of the new company accounts.

If you are starting a business, the opening balance sheet should be included as part of the business plan. It can also be used to help form a budget.

How is an opening balance sheet made?

Most accounting software packages will generate the opening balance automatically as soon as the new fiscal year begins.

However, if the calculations are done manually, or you are starting a business, the opening balance can be determined using any spreadsheet application.

The opening balance sheet has three main categories: assets, liabilities, and owner’s equity.

Add assets

Assets include any cash the business has on hand, as well as anything the business has bought that may be sold in the future.

The first items to add are called current assets, such as cash on hand, money in the bank, inventory you plan to sell, and any previously paid expenses, such as insurance.

The second group of assets is fixed assets. It includes machinery and other equipment owned, such as furniture, accessories, and any property.

A third group, described as «other assets,» contains any other assets the company has purchased, such as a web domain or logo. When adding these assets, be sure to enter what was paid for them, rather than their market value.

Add Liabilities and Equity

Liabilities include anything the business needs to pay to others, such as business loans or lease payments. They are divided into two categories: current liabilities and long-term liabilities.

Current liabilities include payments the business will need to make during the current fiscal year, such as loan payments, taxes, and license fees. Long-term liabilities are those that extend beyond one year.

Capital represents any money the owners have invested in the business. Once all liabilities and equity are entered, they are subtracted from total assets to determine the company’s opening balance sheet.

operating company

In an operating company, the ending balance at the close of one fiscal year becomes the opening balance for the beginning of the following accounting year.

To enter opening balances, you need a list of outstanding customer and vendor invoices, credit memos, closing account balances from the previous accounting period, and bank statements.

A list of the unrepresented banking elements of the previous accounting system is also needed. They are the bank transactions entered in the previous system, but that still do not appear in the bank account statement. For example, uncleared checks.

Example

Each asset of the company and its value must be entered in the opening balance sheet. Suppose the business has $500 in cash, a car that is currently worth $5,000, and property that is worth $100,000. Each of these amounts should be listed under “assets” on the opening balance sheet.

Any debt the company has in relation to the assets is entered. Suppose you have a $75,000 debt with a company, maturing in five years. It would then be written “long-term debt with the value of $75,000”.

Short-term debt matures in less than a year. Long-term debt matures in more than one year. Total liabilities are subtracted from assets to calculate owner’s equity. This is the amount that an owner put into the business.

It would be $105,500 minus $75,000, which equals $30,500 of principal. So, of all the assets, $30,500 was turned over to the company by the owner.

In the case of a new company, the opening balance sheet usually has only two accounts: one is cash on hand and another is capital contributed by the company’s founders.

Difference Between Opening Balance and Trial Balance

A trial balance is an internal report that will remain in the accounting department. It is a list of all general ledger accounts and their corresponding balances.

Debit balances are entered in one column and credit balances are entered in another. Each column is then added to show that the total of the debit balances equals the total of the credit balances.

On the other hand, an opening balance sheet is one of the financial statements that will be distributed outside of the accounting department.

Only the balances of the asset, liability, and equity accounts of the trial balance are presented in each corresponding section of the opening balance sheet. The trial balance is not a financial statement, while the opening balance is.

inherent meaning

A trial balance is created to record the balances of all ledger accounts. An opening balance sheet is created to see if assets equal liabilities plus equity.

Application

The trial balance is used to see if the total of the debit balances equals the credit balances. The opening balance sheet is used to accurately show the financial affairs of a company.

Division

In the trial balance each account is divided into debit and credit balances. On the opening balance sheet, each account is divided into assets, liabilities, and equity.

Fountain

The source for the trial balance is the general ledger. The source of an opening balance is the trial balance.

ordering

There is no specific order for a trial balance. The opening balance sheet needs to be in the proper order of assets, liabilities, and then equity.

References

Opening balance – What is the opening balance? Recovered from debitoor.com.
An introduction to opening balances. Retrieved from help.sageone.com.

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