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What is an Opening Balance?

Definition: The opening balance is the balance that is brought forward from the end of one accounting period to the beginning of a new accounting period.
The funds in a firm's accounts at the start of a new financial period are called the opening balances. The opening balance is the first entry in a firm's accounts, either when they are first starting up or at the start of a new financial year.

The opening balance can be found on the credit or debit side of the ledger, depending on whether or not the firm has a postive or negative balance.

When they are present

When a firm ends an accounting year and it takes the closing balance - the last balance in the accounts at the year-end - and carries it forward to the new financial year accounts. It then becomes the opening balance - the first entry in the new financial year.

Opening balances can also become important if a firm transfers their accounts to a new accounting system. When this occurs, the last entry in the previous accounts will become the opening balance in the firm's new accounts.

The opening balance sheet

At the start of a financial plan, the opening balance can be found on the opening balance sheet.

An operating firm's opening balance data on the opening balance sheet comes from the end balance sheet data of the previous accounting period.

In the case of a new company, the opening balance sheet usually has just two accounts: one being the cash on hand and one being the capital contributed by the company's founders.

 

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