Opening balance sheet

An Opening Balance Sheet at times called an opening trial balance sheet, is the quantity of cash in a business's account at the start of a new financial period (first day of month) and is made up for balance sheet accounts like assets, liabilities and also equity at the beginning of a reporting term .

Opening balance sheet information is required for a budget for coming periods. The closing balance for a period resolve into the opening balance for the following period. Depending on whether or not the company has a beneficial or negative balance, the opening balance will be on the credit or debit side of the ledger .

Generally speaking, the opening balance sheet is :

• the balance sheet at the start of a fiscal period
• at the establishment of a new individual
• at the opening of an deployment of consecutive bookkeeping standards ( an opening balance sheet is requested as the initial stage for the group, as the firm taken on frequently applies accounting standards dissimilar to those of the rest of the group)

Opening Balance Sheet equation

Opening Balance add Total of Income less Total of Expenditure = Closing Balance

• opening balance ( what you have in a bank at the beginning)
• total income (The amount of all cash received by an individual or institution, containing proceeds from engagements or assuring services, revenue from sales, remmitances from pension plans, income from dividends, or other references.)
• total of expenditure (The total amount of the costs paid for one or more products or services multiplied by the quantity of every item purchased)
• Closing balance (money you have left)

As has been stated earlier, the opening balance is an account, plus the amounts of increases, minus the amounts of decreases. It is obvious also that the closing balance for a duration resolves into the opening balance for the following term). All of these mean to look the closing valuation up characterised above or to improve a mistake in an account, so as to its ending balance is legitimate .

Opening Balance Sheet in IFRS

Because of revealment expectations as mentioned in International Financial Reporting Standards (IFRS), the opening balance sheet must be geared up at the start of the reporting period. This balance sheet has to be progressive to a balance sheet at the purchase date by processing all the company's dealings during the course of that period. This advanced opening balance sheet acts as the beginning stage in the array. The period among the (primary) opening balance sheet and the advanced opening balance sheet forms a proforma term that is necessary to descend information for revelation as determined on International Financial Reporting Standards. An variant technique of arrangement the opening balance sheet: giving the fact that a cost benefit ratio in the opening balance sheet can be resulted immediately from the financial statement as of the purchase date. The required disclosures are taken from local accounts .

Examples of Opening balance sheet

• The opening balance sheet of a company will include all assets, liabilities, and equity accounts that existed at the beginning of the financial year. For example, at the start of the financial year a company may have $50,000 of cash and $30,000 of accounts receivable. The opening balance sheet would record these items as assets.
• The opening balance sheet of a business may also include an inventory of raw materials, finished goods, and supplies that were on hand at the start of the financial year. For example, a retail store may have $100,000 of inventory at the start of the year. This inventory would be recorded as an asset on the opening balance sheet.
• The opening balance sheet may also include liabilities such as accounts payable, short-term loans, and long-term debt. For example, a business may have short-term loans of $50,000 and long-term debt of $150,000. These liabilities would be recorded on the opening balance sheet.
• The opening balance sheet may also include the capital contributed by the owners of the business. For example, if the owners of a business have contributed $200,000 in capital to the business, this would be recorded as an equity item on the opening balance sheet.
• The opening balance sheet may also include any retained earnings from the previous year. For example, a business may have earned $30,000 in net income during the previous year. This net income would be recorded as retained earnings on the opening balance sheet.

Advantages of Opening balance sheet

An Opening Balance Sheet is a great tool for businesses to analyze the financial position of their business at the start of a new financial term. It is critical to understand the financial health of the business at the beginning of the period to ensure that the business is able to plan and budget accordingly. Here are some advantages of an Opening Balance Sheet:

• It provides a snapshot of the financial position of the business at the start of a period. This includes assets, liabilities, and equity.
• It allows businesses to identify areas of strength and weakness, and any discrepancies in the opening balance sheet can be investigated.
• It provides a foundation to build a budget upon and can help businesses plan accordingly.
• It can also be used to compare against the ending balance sheet of the period and to track the progress of the business.
• It can be used as a reference in the event of any financial disputes or discrepancies.

Limitations of Opening balance sheet

An Opening Balance Sheet provides an initial snapshot of the financial health of a business at the start of a new financial period. However, there are several limitations to consider when looking at an Opening Balance Sheet. These limitations include:

• It may not reflect the true financial position of a business as it only includes the quantity of cash available and not the value of the assets and liabilities.
• It does not include any transactions that have taken place since the start of the financial period.
• It does not take into account any exchange rate fluctuations that have occurred since the start of the period.
• It cannot be used to compare the financial health of different businesses as the data is specific to each business.
• It may not be up-to-date, as it is based on the initial snapshot of the account balances at the start of the period.

Footnotes

Opening balance sheet — recommended articles

Time period concept — Opening entries — Accrual method — Opening stock — Income summary account — Post closing trial balance — Closing balance — Accrued income — Closing the accounts

References

• Ivens K. (2005) Running QuickBooks In Nonprofits, CPA 911 Publishing, LLC Philadelphia PA
• Krimpmann A. (2015) Principles of Group Accounting under IFRS, John Wiley & Sons, Ltd
• Stickney C.P, Weil R.L, Schipper K, Francis J (2009) Financial Accounting: An Introduction to Concepts, Methods and Uses, South-Western Cengage Learning

Author: Paulina Matysiewicz