Finance Manual C/S - Opening balance sheet: Explanation
Opening balance sheet: Explanation
The following subjects are discussed:
- Entering the opening balance sheet
- Opening balance sheets for future financial years
- Opening balance sheets for previous financial years
Entering the opening balance sheet
In Exact, the opening balance sheet has to be entered for the first financial year only. For all subsequent financial years the opening balance sheet is based on the closing balance sheet of the previous year. Therefore, this procedure has to be performed only once. Enter the opening balance sheet after you've entered the master data. The subsidiary ledgers with outstanding items for debtors and creditors are updated simultaneously.
- You can make other journal entries for period 1 and subsequent periods before entering the opening balance sheet. However, it's advisable to enter the opening balance sheet as soon as you can.
- Journal entries for the opening balance sheet should be made in period 0.
Make sure you:
- Have print-outs of the opening balance sheet and the outstanding items list at hand.
- Have entered all master data.
- Have created a suspense account. After the opening balance sheet has been entered completely, the suspense account has a zero balance.
Step 1: Enter the cash and bank balances
The cash and bank balances should be entered in the appropriate general ledger accounts. You can do this in two ways:
- Through the corresponding journals
A default offset account is linked to each of these journals. Enter the opening balances in the appropriate journals, using a suspense account.
For bank accounts, you can enter the closing balance of the last statement.
- You may already have entered the opening balance for each journal. This opening balance is not registered in the linked offset account because it is kept for information purposes only.
Step 2: Enter outstanding items
Outstanding items for debtors and creditors are kept in separate subsidiary ledgers. The grand total of all outstanding items for debtors should equal the balance of the general ledger account 'Debtors' to which sales are posted. Likewise, the total of outstanding amounts for creditors should equal the balance of the general ledger account 'Creditors'.
There are two ways of entering outstanding items: in the sales and purchase journals or in the general journal.
Step 3: Check the balance of the suspense account
Before continuing, you should determine the balance of the suspense account. This balance should equal the balance of the remaining entries. If this is not the case, check the entries made previously before continuing.
Step 4: Enter the remaining balance sheet items
You can now enter all items of the opening balance sheet other than 'Creditors' and 'Debtors' and the cash and bank balances. The balance of these remaining items should equal the balance of the suspense account.
- If you want to make entries in stock accounts, enter the opening stock in the stock accounting system and journalize these entries. Otherwise, your stock accounting system and the financial administration may become inconsistent.
The remaining balance sheet items should be entered in the general journal. If these entries constitute a debit balance, the suspense account should be credited for the same amount and vice versa. After the remaining journal entries have been made the suspense account should have a zero balance.
Step 5: Check and correct your entries
Before posting the entries, check them carefully. Once entries have been posted, they can no longer be changed or deleted. Therefore, any mistakes that are discovered after posting must be corrected with correction entries.
Entries can be corrected in the following way:
- Call up incorrect entries in the entry function and correct them.
- If this is not possible, delete them and re-enter them if necessary.
After having made corrections, print a new entry report for the journal(s) concerned. After having made corrections, it's important to ensure that everything is correct before posting the entries. Besides, it may be useful later to have an entry report that is 100% consistent with the opening balance entries.
Step 6: Post the entries to the general ledger accounts
In this step, the entries are finalized. They are transferred from the journals to the general ledger accounts and it is no longer possible to change or delete them. This means that the outstanding items attached to the entries will also be finalized. It's advisable to make a backup before posting.
Step 7: Print the opening balance sheet
The opening balance sheet is now correct, provided all data has been entered correctly. Compare the Exact balance sheet to the balance sheet used for entry to make sure this is the case.
Step 8: Close period 0 in Exact
To distinguish opening balance sheet entries from other entries, no other entries should be made in period 0. You should therefore close period 0 for further entries.
Example
This example shows how to enter a simple opening balance sheet. It does not explain all details but does include all relevant journal entries.
Opening balance sheet
Opening balance sheet as at 1 January 1996
| 0100 Buildings
| 1,000,000
| 0650 Reserve
| 130,000
|
| 0200 Inventory
| 240,000
| 0660 Unappropriated profit
| 70,000
|
| 3000 Goods on stock
| 100,000
| 0670 Mortgage
| 600,000
|
| 1300 Debtors
| 120,000
| 1600 Creditors
| 200,000
|
| 1000 Cash
| 110,000
|
|
|
| 1100 Bank
| 30,000
|
|
|
|
|
|
|
|
|
| 1,800,000
|
| 1,800,000
|
Claims against debtors:
- Debtor 1: ? 70,000
- Debtor 2: ? 20,000
- Debtor 3: ? 30,000
Debts to creditors:
- Creditors 1: ? 150,000
- Creditors 2: ? 50,000
After entering the cash and bank balances and the outstanding items (steps 1 and 2), you should determine the balance of the suspense account.
2000 Suspense account
| 1600 Creditors
| 150,000
| 1100 Bank
| 30,000
|
| 1600 Creditors
| 50,000
| 1300 Debtors
| 70,000
|
|
|
| 1300 Debtors
| 20,000
|
|
|
| 1300 Debtors
| 30,000
|
| Balance
| 60,000
|
|
|
| Grand total
| 260,000
| Grand total
| 260,000
|
You can already determine whether this balance of ? 60,000 is correct. The suspense account should eventually have a zero balance. To ensure a zero balance, the current balance should equal the balance of the remaining items to be entered.
Credit:
- 0600 Capital stock800000
- 0650 Reserve130,000
- 0660 Unappropriated profit70,000
- 0670 Mortgage600,000
Total credit1,600,000
Debit:
- 0050 Land200,000
- 0100 Buildings1,000,000
- 0200 Inventory240,000
- 3000 Goods in stock100,000
Total debit:1,540,000
Difference between debit and credit60,000
Enter the remaining balance sheet items in the general journal. First debit '2000 Suspense account' for 60,000. After this you can enter all balance sheet items not entered previously.
Print an entry report. The following journal entry should appear in this report:
2000 Suspense account60,000
0050 Land200,000
0100 Buildings1,000,000
0200 Inventory240,000
3000 Goods in stock100,000
//0600 Capital stock800,000
//0650 Reserve130,000
//0660 Unappropriated profit70,000
//0670 Mortgage600,000
Post the entry and check the posting report. Afterwards, the suspense account should have a zero balance. You can now print the opening balance sheet and compare it to the original balance sheet.
Opening balance sheets in future financial years
When you open a new financial year, the opening balance sheet is generated immediately. It is a copy of the closing balance sheet of the preceding financial year.
- You can open only the financial year immediately following the highest financial year.
Every time you post an entry in a certain financial year, all opening balances in higher financial years are maintained. This means that a correction entry is made in every subsequent financial year to maintain consistency.
Example
Your lowest financial year is 1992; the highest 1998. When you open 1999, the current closing balance sheet of 1998 is used to generate the opening balance sheet of 1999.
When you make an entry in 1997, the opening balance sheets of 1998 and 1999 have to be updated to maintain consistency.
Balance sheets for previous financial years
If the balance sheet for a previous financial year isn't available - for example because you weren't using Exact at the time - you can enter it manually. You can enter the debit and credit totals for each general ledger account for each period. This enables you to use this information in comparison overviews, for example, if you want to compare the balance sheet of the current financial year to the balance sheet of the previous financial year.
Related Encyclopedia terms:
- Balance sheet
- Cost center
- Cost unit
- Entry
- Financial year
- Outstanding item
- Profit and loss statement
Finance Manual C/S > Contents > Encyclopedia > Opening balance sheet > Opening balance sheet: Explanation
XNineSixOneX
| Main Category: |
Support Product Know How |
Document Type: |
Support - On-line help |
| Category: |
On-line help files |
Security level: |
All - 0 |
| Sub category: |
Details |
Document ID: |
06.841.267 |
| Assortment: |
Exact Financials (v3)
|
Date: |
10-03-2005 |
| Release: |
|
Attachment: |
|
| Disclaimer |