The Importance of an Accurate Opening Balance with an Example
Overview of Opening Balances
Opening balances represent the financial position of your company on the day before you start using Bookkeep. Without accurate opening balances, reports cannot give you a true picture of your financial position. They ensure accounts are accurate and help maintain historic accounting records.
Best Practices for Starting with Bookkeep
We recommend that you start using Bookkeep at the beginning of a new accounting period, whether this is a new month or quarter, or the start of your fiscal year. You can then produce your final trial balance from your prior period. This ensures that all of the values you enter are accurate and have been reconciled.
Definition and Significance
A company's opening balance is the funds in its account at the start of a new financial period. The closing balances of the previous period become the opening balances of the new period. The closing balance is the sum of the differences between all credits and debits over that period. This amount is then carried over to the next period as the opening balance.
For a newly formed limited company, there will be no opening balance as there were no prior year-end accounts.
Preparing for Bookkeep
Before starting with Bookkeep, ensure an accurate opening balance by reconciling all bank and balance accounts (e.g. Stripe or Shopify balance/clearing accounts where you may have a pending balance from prior sales not transferred to your bank account). The opening balance must match the bank statement, POS system, or ecommerce app. Any discrepancies should be investigated and resolved promptly.
Practical Example
Let's take the example of My Ecommerce Store. My Ecommerce Store set up an online business on Shopify using Shopify and PayPal to process payments. My Ecommerce Store was manually recording sales and deposits each month due to limited time to record them daily. However, after discovering Bookkeep, My Ecommerce Store began using Bookkeep on 11/1/2023 to automate syncing of financial data from Shopify and PayPal into QuickBooks.
October 31, 2023 closing balances became the opening balances on 11/1/2023 when using Bookkeep. It was important that all sales and payments up to 10/31/2023 were fully recorded in QuickBooks prior to starting Bookkeep.
This migration resulted in sales of $1,000 on 10/31/23 being recorded manually in QuickBooks prior to Bookkeep with a running balance in the PayPal clearing or balance account of $300 and a running balance in the Shopify clearing or balance account of $700 from the 10/31/23 sales. This allowed Bookkeep to then begin recording sales and deposits on 11/1/23 for My Ecommerce Store. Additionally, the PayPal and Shopify deposits automated by Bookkeep captured the $300 and $700 transfers to the company's bank account on 11/2/23. Accurate opening balances ensured seamless capture of expected transfers from the balance accounts to the bank account.
If you have any questions, please contact support@bookkeep.com.