The journal entry is recorded at the beginning of an accounting period for opening the books of accounts. It supports bringing forth the balances in the ledger accounts and is called the opening entry. The opening entry for the ledger account is based on the opening balance sheet.
The various assets, liabilities, and capital that appear in the balance sheet of the previous accounting period are then brought forward in the books of a present accounting period known as an opening entry.
What is an Opening Entry?
A business first decides to use the double-entry bookkeeping system, then it needs to record an opening entry in the ledger using the general journal.
The opening of a firm will vary from business to business, this depends on the inclusion of contents of the opening balance sheet.
The opening entries are those entries that are being represented in the balance sheet, this is the amount that is brought forward at the beginning of an accounting period from the end of the previous accounting year. The opening balance consists of the assets, capital & liabilities of the company that is being brought from the previous year’s Balance sheet. Check out the official website of Vedantu or download the app for a comprehensive and easy to understand explanation.
In a going concern type, the closing balance of the previous accounting period becomes the opening balance for the beginning of the next accounting year. The opening balance is then transferred to new ledger books for the new accounting period. While in most organizations, prefer a new ledger for transferring the opening entry. This balance appears on the credit or debit side of the ledger.
An opening entry, in the books of account, is the initial entry that is used to record the financial transactions which occur at the start of an organization. The contents of the opening entry will typically include the initial cash flow for the firm, which is the funding of the business.
Opening Entry Example
On 1st January 2016, IP’s assets and liabilities are
Assets: Cash in Hand Rs. 8,000, Cash at Bank Rs. 18,000, Stock Rs. 5,000, Account Receivable Rs. 6,000; Building Rs. 800,000, Investment Rs. 42,000; Furniture Rs 50,000.
Liabilities: Accounts Payable 80,000, Loan A/c Rs 120,000
Pass on Opening Journal Entry.
Tally Opening Balance Entry
We can alter the opening balances of ledgers to zero by enabling the option of Zero Opening Balance.
To set the opening balances of ledgers under group:
Go to Gateway of Tally then, Accounts Info. After this click Ledgers, then go to Multiple Ledgers, then press Alter.
Select the relevant group (example, ‘Sundry Debtors’) from the List of Group. The Multi Ledger Alteration screen appears as shown below in the image
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Press Z: Zero Op Bal to set the opening balances of the ledgers to nil/zero.
Opening Entries for New Business and Running Business
When a new business is first commenced, the assets and liabilities introduced into the business are required to be incorporated in the books of accounts by an opening entry that is being passed through the general journal by debiting the assets and crediting the liabilities brought in and also crediting the capital account with the excess of assets over liabilities.
While, in the case of running a business, the opening entry is necessary at the beginning of a new accounting period when the new books of accounts are introduced to record the balance of assets, liabilities, and capital brought forward from the previous accounting period.
Opening Entry in Accountancy
Whenever we start a business or firm we record transactions to maintain records. We do our first entry in a ledger and that first entry done by institutions is called an opening entry or opening statement.
The contents of the opening entry generally include the initial funding as well as any initial debts incurred and assets obtained by the firm.
All firms maintain records and they are called ledgers in accountancy. The ledger records ball transactions carried by the firm. The entry in the ledger is made under single entry or double entry. The merger is divided into two parts where debits and credits of a firm are mentioned. The ledger should be balanced by the end of the accounting year. This is also called bookkeeping in accountancy.
In continual business, the closing balance of the previous accounting period is an opening balance for the next year that is the current accounting period.
The opening entry of any firm differs based on the business and the opening entry can be either on the debit or credit side of a ledger.
Passing Opening Entry
As the accounting period starts the accountant of a particular firm passes a journal entry that contains all the details of the firm like the opening balance of all assets and liabilities including the capital.
Assets have a debit balance and therefore, assets are put on the debit side of the opening entry, while liabilities have a credit balance and are therefore credited in the opening entry.
A journal entry consists of :
If the assets exceed all the liabilities, the excess value will be regarded as a value of capital and will be shown as a credit in the opening entry, and if the liabilities overrun the value of the assets, then it will be debited in the opening entry.