What is an opening balance?
The balance loaded into an account when the books are first set up or moved to a new system. It is the first figure that account shows in the new books, not the start-of-period figure on a later statement.
Definition
An opening balance is the first dollar amount loaded into an account when you set up books or move them to a new system. It is a conversion figure, not the start-of-period amount that later monthly reports display.
On the books, this is the seed that makes each general ledger account match the old records on day one. After that load, new activity posts on top of it.
Where it shows up
Balance Sheet: Related to the starting figure loaded onto each account when books are set up.
P&L: Related to income and expense accounts only if those accounts also receive a load.
Cash flow: Related to cash only if cash itself is loaded as a starting figure.
See also: Post-Closing Trial Balance · General Ledger · Chart Of Accounts Mapping
When you open the Balance Sheet right after a conversion, each line already shows a figure even though you have not recorded a sale yet. Those figures came from the load, not from this week's invoices.
The Income Statement usually starts at zero in a new file. Income and expense accounts receive a load only if you convert mid-year and need totals for the year so far to carry in.
Cash flow does not treat the load as money moving that day. Loading cash records that cash already exists; it does not record a deposit arriving at the bank.
How it works
You start with the old books, a spreadsheet, or bank and loan statements. You pick a conversion date, which is the last day the old records are complete.
Then you align old account names with the new account list. Chart of accounts mapping is that alignment, so cash in the old file lands in cash in the new file.
For each account you enter one starting figure. The software often posts that figure through a journal entry dated on the conversion date.
Asset loads usually take a debit. Liability and equity loads usually take a credit.
When you load cash without loading matching liabilities and equity, the books will not balance. Many systems use an equity holding account, often labeled opening balance equity, to absorb the other side until you finish the load.
Posting writes those amounts into the general ledger. After posting, a Trial Balance should show that debits equal credits before you record any new activity.
You then prove the loaded cash with a bank reconciliation. You prove loans to lender statements, and inventory to a count or listing.
If a loaded figure does not agree, you correct the load. Do not bury the difference in later months.
A post-closing trial balance from the old books is a common source for balance-sheet loads. It lists only the accounts that still have balances after closing entries have cleared income and expense.
Example
A bakery has kept receipts in a shoebox and is moving to QuickBooks on March 1. The checking account holds $8,000 that morning, and there are no other accounts to convert yet.
The bakery records the load:
Debit: Cash $8,000
Credit: Opening balance equity $8,000
Cash now shows $8,000 in the new file. Opening balance equity holds the other side so the books stay in balance.
That $8,000 is not March sales. It is cash the bakery already had when the new books began.
It is also not the beginning balance of some later month, such as June 1. June's start figure will be whatever cash is left after March through May activity.
After the load, the baker records flour purchases and cake sales as new entries. Those later entries change cash; they do not replace the conversion figure.
Common mix-ups
An opening balance is not a beginning balance. The opening figure is loaded once, when books are created or converted.
A beginning balance is the amount an account shows at the start of a reporting period, such as June 1. After conversion, each new month already includes everything posted since the load.
An opening balance is not an ending balance. The ending figure is what the account shows at period close, after that period's activity.
The conversion load may equal the old file's last ending figure. That is a source for the load, not the same event as closing this month.
Opening balance equity is not profit. It is a holding account used so the conversion entry stays in balance until you assign leftover amounts to the right equity accounts.
Related terms
- Beginning Balance: An account's balance at the start of the reporting period.
- Ending Balance: An account's balance at the close of the reporting period.
- Post-Closing Trial Balance: The trial balance produced after closing entries, showing only balance-sheet accounts.
- General Ledger: The master record of every account and every posted transaction.
- Chart Of Accounts Mapping: Aligning one account structure to another for reporting or system migration.
- Account Reconciliation: Proving that a ledger balance agrees to independent support.
- Accounting Period: The span of time a set of financial statements covers.
- Roll-Forward Schedule: A schedule showing how an account moved from its beginning to its ending balance.