Opening Entry

Introduction: What is an Opening Entry in Economics?

An opening entry is the record of a previous balance sheet that is recorded newly in a new balance sheet. Usually, when a new accounting period begins, the older records are used as the new entry to start in the new balance sheet. This is known as an opening entry. In general, to open the books of accounts, the journal entry is taken at the beginning of the new accounting period. It helps in transferring the balances in the ledger accounts and is called an opening entry. As is obvious, the opening entry is based on the opening balance sheet.

The opening entry consists of

• The Balance Sheet’s Assets

• Liabilities, And

• Capital of the Previous Accounting Period.

These v values are brought to the new balance sheet in a new accounting period which is called opening entry.

In the double-entry bookkeeping system, the businesses need to use an opening entry in the ledger which uses the general journal. The opening entry usually depends on the contents that are included in the opening balance sheet by organizations and vary from organization to organization.

The opening entry is the record that is brought forward from an old balance sheet to a new balance sheet. That is, the record that is left ion the end of the previous accounting period becomes the opening entry in the next accounting period. The opening balance usually consists of assets, liabilities, and capital that are brought to a new accounting period from the last accounting period for keeping the records of the organization.

It must be noted that in a going concern type business, the last recorded accounting entry becomes the opening entry at the start of a new business year. Therefore, opening entry is the last recorded data of financial records of an organization that is used as the starting record in a new financial year by the organization.

Example of Opening Entry

On the 1st January 2016, XYZ’s assets and liabilities are

Assets − Cash in Hand Rs. 10,000, Cash at Bank Rs. 20,000, Stock Rs. 5,000, Account Receivable Rs. 10,000; Building Rs. 1000,000, Investment Rs. 40,000; Furniture Rs 50,000.

Liabilities: Accounts Payable 100,000,Loan A/c Rs 120,000 Pass on Opening Journal Entry.

Date	Particulars	L.F	Debit	Credit
	Cash in Hand .. DR…Rs. 10,000, Cash at Bank …DR…Rs. 20,000, Stock Rs. …..DR 5,000, Account Receivable ..DR..Rs. 10,000; Building …DR Rs. 1000,000, Investment ….. DR Rs. 40,000; Furniture ….DR Rs 50,000. Accounts Payable ….CR…100,000, Loan A/c Rs ….CR… 125,000 Capital A/c Balance… CR…910,000	11,35,0000	11,35,0000
	Opening assets and liabilities are transferred to a new ledger.

Opening Entry: New and Running Businesses

For a new business, the assets and liabilities must be incorporated in the books of accounts by using an opening entry that is passed through the general journal by debiting the assets and crediting the liabilities. These are brought in new books of account. Note that the capital account with an excess of assets over liabilities must also be credited.

For running businesses, the new entry is just the last ending entry of the previous year. The records of the ending year’s balance sheet act as the new opening entry in such cases. So, assets, liabilities, and capital records must be included new in a new balance sheet for running businesses that will act as an opening entry.

Opening Entry in Accountancy

Whenever a new business is set up, the owners must keep the records of the business through an accountancy department. The accountancy team records all initial funding and debts related to the business. This first entry of assets and liabilities of a business, as well as capital investment, is known as the opening entry for the business.

• The books of records where accounting is maintained are known as ledgers. Therefore, the ledgers contain all details about the assets, liabilities, and capital of a business. LKedger entries could either be single or double, but the double entry system is more popular where credit and debit must be equal after all calculations are done.

• The process of maintaining the credits and debits equal is known as bookkeeping in accounting terms. It is a normal course in the case of bookkeeping of continuing businesses to bring the ending records of a financial year or the closing balance to the start of the next financial year newly. This is what we call the opening entry of a continuing business.

The opening entry of a business may differ according to the type of business and they can be located in either debit or credit side of the ledgers.

Passing Opening Entry

At the outset of a new financial year, the accountant or the accounting team of an organization passes a new journal entry that includes all the financial details of the firm. These details include assets, liabilities, and the capital of the businesses.

As assets have a debit balance, they are kept on the debit side of the opening entry while liabilities are kept on the credit side of the opening entry of the businesses’ balance sheets.

The Journal entry consists of three parts - Assets, Liabilities, and Capital accounts. When assets exceed liabilities, the excess value is considered capital. On the other hand, when liabilities are more than assets, it is debited in the opening entry.

Importance of Opening Entry

Opening entry is a very useful and important measure for a business. It must be correct and should be taken directly from the last year’s closing entry. As the opening entry works as the starting point of a new balance sheet, it must be error-free and adjusted correctly. Any discrepancy in recording the opening entry may lead to subsequent and larger errors in business accounting. That is why accountants pay extreme attention while compiling a new opening entry for a business.

Conclusion

As mentioned, opening entry is a very useful calculation for businesses to start a new accounting year. It is useful for both new and old businesses. The accounting team of a business is responsible for creating an error-free opening entry that perfectly represents the starting point of a business in a new financial year. It is a very responsible and critical job because any error in it may lead to unexpected malfunctioning in the whole process of accounting for the business.

FAQs

Qns 1. What is meant by opening entry?

Ans. The opening entry is the record of a previous balance sheet that is recorded newly in a new balance sheet. Usually, when a new accounting period begins, the older records are used as the new entry to start in the new balance sheet. This is known as an opening entry.

Qns 2. In how many parts does a journal entry consist?

Ans. The Journal entry consists of three parts - Assets, Liabilities, and Capital accounts.

Qns 3. What is passing opening entry?

Ans. At the outset of a new financial year, the accountant or the accounting team of an organization passes a new journal entry that includes all the financial details of the firm. These details include assets, liabilities, and the capital of the businesses. This is known as passing opening entry.