Accountancy · Ch 8 — Financial Statements - I
Opening Entry
Opening Entry
Opening Entry
The balance sheet you prepare at the end of an accounting period does not get thrown away. Every asset, every liability, and the capital figure shown in that balance sheet are the opening balances for the next period. In other words, the balance sheet of one year becomes the opening trial balance of the next year.
To bring these balances into the new year's books, you record a single journal entry called the opening entry. This entry opens all the accounts whose balances appear in the previous year's balance sheet.
The rule is straightforward: debit all assets, credit all liabilities, and credit the capital account with the balancing figure (which represents the owner's equity). The capital account itself is credited because capital is a liability of the business to the owner — it has a credit balance.
The Journal Entry Format
The opening entry follows this pattern:
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| April 1 | Furniture A/c Dr. | xxx | ||
| Debtors A/c Dr. | xxx | |||
| Bank A/c Dr. | xxx | |||
| Cash A/c Dr. | xxx | |||
| (All other asset accounts) Dr. | xxx | |||
| To Capital A/c | xxx | |||
| To 10% Long-term Loan A/c | xxx | |||
| To Creditors A/c | xxx | |||
| (All other liability accounts) | xxx | |||
| (Being opening entry recorded to bring forward the balances from the previous year's balance sheet) |
Worked Example from the Textbook
Refer to the balance sheet shown in Figure 8.10(c) of the textbook. The opening entry based on that balance sheet would be recorded as follows:
| Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|
| Furniture A/c Dr. | 15,000 | ||
| Debtors A/c Dr. | 15,500 | ||
| Bank A/c Dr. | 5,000 | ||
| Cash A/c Dr. | 1,000 | ||
| To Capital A/c | 16,500 | ||
| To 10% Long-term Loan A/c | 5,000 | ||
| To Creditors A/c | 15,000 | ||
| (Being opening entry recorded) | 36,500 | 36,500 |
Notice that the total of the debit amounts (₹36,500) equals the total of the credit amounts (₹36,500). This must always be true because the balance sheet itself was balanced.