Opening Entries in Accounting: Out With The Old, And In With The New

By Nicholas Barone
Published: 12/10/21
definition backgroundOpening Entries in Accounting: Out With The Old, And In With The New

Accounting may seem technical, and sometimes hard to wrap your head around for anybody who’s not directly involved with it. However, there are some basic concepts that are pretty easy and fundamental to understand, that are also really powerful tools for keeping track of your business’s financial records and performance. One of those is called Opening Entries. Keep reading to find out more!

Opening Entries

Let’s start off with a somewhat related example that will make the whole concept easier to understand. When you finish your workday, in some businesses, you have to report what you did for the day, that work is then subsequently the basis of what you’ll do the next day. It’s the same thing in accounting, when a fiscal year or period comes to an end, businesses don’t get rid of the assets, things they have, or liabilities, things they owe, just to start a new year or period. They carry them over to the new fiscal period by writing an opening entry, showing the existing assets and liabilities they already have. Pretty easy, right?

Let’s look at an example.

Opening Entry Example

For the sake of simplicity, we’ll keep this pretty basic. Let’s say that a small business finishes the year with $50,000 dollars in assets, whether that be in accounts receivables, cash, etc., and $10,000 dollars in liabilities, like loans, accounts payables, etc. The last line on the balance sheet, most likely in September, the final month of the fiscal year in the US, will list all of the assets they have at the end of the year.

Date 

Particulars 

Debit

Credit

Cash…………………. $20,000


Accounts Receivables……….. $15,000


Stock………. $5,000           



To, Bank Loans………. $5,000


Accounts Payables……. $5,000                    





$50,000










$10,000

Subsequently, the two total numbers of assets and liabilities you have at the end of the year are then transferred over to the start of the new year, and volià! That’s it!

Opening Entry in Accounting

As we said before, accounting can sometimes seem unapproachable and too complicated. However, as far as accounting concepts go, this is pretty simple and straightforward. Besides, being easy to understand and use, it’s crucial for the financial wellbeing of your business. Understanding what resources and what things you have to pay back is the basis of making good business decisions.

Why This Is Important

As stated before, opening entries in accounting are extremely important because it allows businesses like yours to form the basis of your financial statements and reporting. Without simple rules like how to bring assets and liabilities from the previous period to the current one, you would never have coherent and regulatory compliant financial statements.

So the next time somebody talks about the opening entry in the fiscal year balance sheet, you won’t look so confused!

Transparency is an essential value for Appvizer. As a media, we strive to provide readers with useful quality content while allowing Appvizer to earn revenue from this content. Thus, we invite you to discover our compensation system.   Learn more
Definition backgroundWhy you should keep a fixed asset register on deck
Definition
December 31, 2021
Why you should keep a fixed asset register on deck
Why you should keep a fixed asset register on deck? This is just one of the question you may ask yourself about Fixed Assets Register, wanna find out the answers? check this article!
Tip backgroundGet transaction certainty with a debit note template
Tip
December 27, 2021
Get transaction certainty with a debit note template
Do you want to keep track of your debt obligations, but aren't sure of where and how to create the document that certifies your transactions? Then read this article to know more and if you stick around, you'll get a nice, free to download debit note template.
Definition backgroundFixed assets inventory: What’s the key difference
Definition
December 13, 2021
Fixed assets inventory: What’s the key difference
Fixed assets and inventory are very easy to be confused. So, what is the key difference between fixed assets and inventory? Discover what fixed assets inventory is, its importance, and the dissimilarity between these 2 notions in this article.
Tip backgroundA free credit note template and why you should care
Tip
December 9, 2021
A free credit note template and why you should care
A credit is always there to ensure that they were made and that both agreed to them. It is the black on white proof that one needs for the exchange of goods and services. If you want to know more, read the article and you'll even get rewarded with a free credit note template.
Definition backgroundA must-read of journal entries definition
Definition
December 9, 2021
A must-read of journal entries definition
It didn't happen until it was recorded and that is the importance of journal entries definition and why you should know about it in accounting for your business. Read more to find out more.
Tip backgroundWhy is a financial template useful?
Tip
December 7, 2021
Why is a financial template useful?
If you want a simple definition of a financial report and the purpose of a financial template, this article gives you a head start with a pre-made, modifiable financial report template.