Closing balance – What is a closing balance?
A closing balance is the amount remaining in an account within your chart of accounts, positive or negative, at the end of an accounting period or year end
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The amount of receipts or liabilities in an account at the end of an accounting period being daily, weekly, monthly, or annually depending upon the context is defined as the closing balance.
As such, at the conclusion of an accounting period, a positive or negative amount will remain in an account. This is the closing balance, which will be carried forward to the next accounting period.
Most business accountants will provide a closing balance to the management. This will normally take the form of a management accounts package and contain the balance for the month reported as well as the cumulative balance.
When closing a financial year the closing balances for the "old" year become the opening balances for the "new" financial year.
Difference between accounting and banking closing balance
There is a difference in the definition of a closing period depending on if you’re in the accounting or banking business.
The accounting closing balance refers to the amount carried forward to the next accounting period. It is the difference between credits and debits in a ledger at the end of one accounting period that is carried forward to the next.
On the other hand, a closing balance in banking refers to the bank balance at end of a business day, month, or year. That is, the amount in credit or debit in a bank account at the end of a period.
This may well differ to your bank account balance within your accounts as items may not have cleared through your bank and will be classed as in transit.
Closing balance in Debitoor
Debitoor allows you to keep track of your balance over the course of the accounting year. When an accounting year ends, you will be able to quickly determine your closing balance. In our larger plans, you can also make use of Profit & Loss, VAT reports, and your balance sheet for a larger picture of your business finances.