Entering Opening Balances

Last Updated: Jan 08, 2015 08:11PM PST

Learn what opening balances are, how to figure out where the money came from, and how to enter your opening balances into Kashoo. The article below discusses how to enter an opening balance by using the adjustments (journal entry) window. If you are looking to import a trial balance from a spreadsheet, please see our article Importing a Trial Balance.

When you first create a business file with Kashoo, you may have bank account balances, outstanding receivables, assets, and prior income you’d like to show on your Balance Sheet and Statement of Profit & Loss.

To do so, you must enter a summary of your past business activities. This can take many steps, and may require some knowledge of bookkeeping terminology, like debits and credits, equity, and retained earnings; if you’re not sure if your ability to do this yourself then we suggest hiring a bookkeeper to assist you.

Key Question: Where did the money come from?

Those unfamiliar to accounting typically just want to type their current bank account balances into the application as their opening balances. Unfortunately, in accounting it’s not enough to show how much money is there, but you also have to explain where that money came from. For example:

  1. If the money came from previous years’ profits, it must be reported as income, or as “Retained Earnings”
  2. If the money came from this years’ profits, it should be broken down into the right income (and expense) accounts
  3. If the money came from a loan, you will want to create an account to represent the loan and credit the loan account to match the money in your bank account (see Q: What is the best way to record a loan?)
  4. If the money came from the owners, as in an investment, you’ll want to record that appropriately (see Getting your money into and out of your business — Investments, Draws, Dividends, and Shareholder Loans)

In addition, there may be other assets and liabilities to put on the Balance Sheet besides your bank accounts, which also have to be “accounted for” – that is, you have to show how you bought them. Any equipment, furniture, or land that your business owns that has re-sale value has to be recorded as an asset. Each asset value (a debit amount) has to be “paid for” with a matching credit amount (past income or investments).

The steps below take all this into consideration for a typical business (you may want to consult with an accountant anyway, just to be sure that we didn’t skip something relevant to your particular business).

It looks like a lot of work, and it may be! However, it only has to be done once, and this information has to be gathered and entered regardless of which business accounting software you use.

However, for many solo consulting/freelance businesses, the entire operation boils down to taking their bank balances, subtracting their credit card balances, and reporting the remainder as “Retained Earnings” as shown in the example screenshot. Ideally they would also include their laptop and desk as an asset value (minus any past years’ depreciation if they didn’t buy them this year).

Step By Step Instructions

Sample opening adjustment

  1. If you have income to report for the current fiscal year, divide it into two pieces: paid and receivable
  2. For each outstanding invoice, enter an invoice so you can track that receivable
  3. If you have expenses to report for the current fiscal year, divide it into two pieces: paid and payables
  4. For each outstanding bill you owe, enter a bill so you can track that payable
  5. Enter an adjustment with the memo “opening balances”
  6. For each bank account and cash, enter it’s current balance into the debit column
  7. Calculate and categorize the value of the assets of your business and enter each category’s total value into the debit column
  8. For each credit card, business loan, or line of credit carrying a balance you have, enter the amount owing into the credit column
  9. For the income you recorded as paid, break it down into rows by Income Account enter the amount of income in the credit column
  10. For the expenses you recorded as paid, break it down by Expense Account and enter the amount of expense in the debit column
  11. If the owners have given cash to the business in return for shares, create an Equity account for each owner and enter the amount of their contribution into the credit column
  12. Add up the two columns to get your total credits and total debits
  13. Subtract total debits from total credits to get your retained earnings. If this is a negative number, enter the amount in the credit column as “Retained Earnings”; if it is positive enter in the debit column.
  14. Click Add to enter the adjustment and update your account balances.

Notes and Tips

  • You can set up accounts directly from the Adjustment form – in the Account dropdown, choose “New Account…”
  • When entering outstanding invoices and bills, be sure to enter the correct dates so that the income or expense is reported in the correct fiscal period; at the very least, report past years’ income on the last day of the previous fiscal year.

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