Opening balance - What is the opening balance?
Definition: the balance brought forward at the beginning of an accounting period.
The opening balance is the amount of funds in a company's account at the beginning of a new financial period. It is the first entry in the accounts, either when a company is first starting up its accounts or after a year-end.
In an operating firm, the ending balance at the end of one month or year becomes the opening balance for the beginning of the next month or accounting year.
When an opening balance is present
Opening balances are most important when a company finishes an accounting year, and ends up with a closing balance - the last balance in the accounts. This balance is carried forward to the new financial year accounts and then becomes the opening balance - the first entry in the New year.
In addition, opening balances are important if you transfer your accounts from one accounting system to another. In this case, the last entry in the old accounts is the opening balance in the new accounts.
Opening balance sheet
The opening balance is used in the beginning of a financial plan on the opening balance sheet.
In case of an operating firm, the data in the opening balance sheet comes from the balance sheet prepared at the end of the previous accounting period; in case of a new firm, the opening balance sheet normally has only two accounts: cash on hand and capital contributed by the firm's founders.