Opening Stock Journal Entry
The journal entry is recorded at the beginning of an accounting period for opening the books of accounts. It supports bringing forth the balances in the ledger accounts and is called the opening entry. The opening entry for the ledger account is based on the opening balance sheet.
The various assets, liabilities, and capital that appear in the balance sheet of the previous accounting period are then brought forward in the books of a present accounting period known as an opening entry.
What is an Opening Entry?
A business first decides to use the double-entry bookkeeping system, then it needs to record an opening entry in the ledger using the general journal.
The opening of a firm will vary from business to business, this depends on the inclusion of contents of the opening balance sheet.
The opening entries are those entries that are being represented in the balance sheet, this is the amount that is brought forward at the beginning of an accounting period from the end of the previous accounting year. The opening balance consists of the assets, capital & liabilities of the company that is being brought from the previous year’s Balance sheet. Check out the official website of Vedantu or download the app for a comprehensive and easy to understand explanation.
In a going concern type, the closing balance of the previous accounting period becomes the opening balance for the beginning of the next accounting year. The opening balance is then transferred to new ledger books for the new accounting period. While in most organizations, prefer a new ledger for transferring the opening entry. This balance appears on the credit or debit side of the ledger.
An opening entry, in the books of account, is the initial entry that is used to record the financial transactions which occur at the start of an organization. The contents of the opening entry will typically include the initial cash flow for the firm, which is the funding of the business.
Opening Entry Example
On 1st January 2016, IP’s assets and liabilities are
Assets: Cash in Hand Rs. 8,000, Cash at Bank Rs. 18,000, Stock Rs. 5,000, Account Receivable Rs. 6,000; Building Rs. 800,000, Investment Rs. 42,000; Furniture Rs 50,000.
Liabilities: Accounts Payable 80,000, Loan A/c Rs 120,000
Pass on Opening Journal Entry.
Solution:
Tally Opening Balance Entry
We can alter the opening balances of ledgers to zero by enabling the option of Zero Opening Balance.
To set the opening balances of ledgers under group:
Go to Gateway of Tally then, Accounts Info. After this click Ledgers, then go to Multiple Ledgers, then press Alter.
Select the relevant group (example, ‘Sundry Debtors’) from the List of Group. The Multi Ledger Alteration screen appears as shown below in the image
(Image will be uploaded soon)
Press Z: Zero Op Bal to set the opening balances of the ledgers to nil/zero.
Opening Entries for New Business and Running Business
When a new business is first commenced, the assets and liabilities introduced into the business are required to be incorporated in the books of accounts by an opening entry that is being passed through the general journal by debiting the assets and crediting the liabilities brought in and also crediting the capital account with the excess of assets over liabilities.
While, in the case of running a business, the opening entry is necessary at the beginning of a new accounting period when the new books of accounts are introduced to record the balance of assets, liabilities, and capital brought forward from the previous accounting period.
Opening Entry in Accountancy
Whenever we start a business or firm we record transactions to maintain records. We do our first entry in a ledger and that first entry done by institutions is called an opening entry or opening statement.
The contents of the opening entry generally include the initial funding as well as any initial debts incurred and assets obtained by the firm.
All firms maintain records and they are called ledgers in accountancy. The ledger records ball transactions carried by the firm. The entry in the ledger is made under single entry or double entry. The merger is divided into two parts where debits and credits of a firm are mentioned. The ledger should be balanced by the end of the accounting year. This is also called bookkeeping in accountancy.
In continual business, the closing balance of the previous accounting period is an opening balance for the next year that is the current accounting period.
The opening entry of any firm differs based on the business and the opening entry can be either on the debit or credit side of a ledger.
Passing Opening Entry
As the accounting period starts the accountant of a particular firm passes a journal entry that contains all the details of the firm like the opening balance of all assets and liabilities including the capital.
Assets have a debit balance and therefore, assets are put on the debit side of the opening entry, while liabilities have a credit balance and are therefore credited in the opening entry.
A journal entry consists of :
Assets A/c
Liabilities A/c
Capital A/c
If the assets exceed all the liabilities, the excess value will be regarded as a value of capital and will be shown as a credit in the opening entry, and if the liabilities overrun the value of the assets, then it will be debited in the opening entry.
FAQs on Opening Entry in Accounting: Definition and Example
1. What is an opening entry in accounting and what is its primary purpose?
An opening entry is the very first journal entry recorded in the books of accounts at the beginning of a new financial year. Its primary purpose is to bring forward the closing balances of all assets, liabilities, and capital from the previous year's Balance Sheet. This ensures accounting continuity and establishes the starting financial position for the new period.
2. What is the fundamental rule for passing an opening journal entry?
The fundamental rule for an opening entry follows the principles of debit and credit. All asset accounts are debited because assets have a natural debit balance. All liability accounts and the Capital account are credited, as they have natural credit balances. The entry must always balance, meaning the total debits must equal the total credits.
3. Can you provide a simple example of an opening entry?
Certainly. Suppose a business has the following balances on April 1, 2025: Cash ₹50,000, Stock ₹30,000, and Creditors ₹20,000. The opening entry would be:
- Cash A/c Dr. ₹50,000
- Stock A/c Dr. ₹30,000
- To Creditors A/c ₹20,000
- To Capital A/c (Balancing Figure) ₹60,000
Here, the Capital is the balancing figure calculated as (Total Assets - Total Liabilities).
4. How does the opening entry for a newly started business differ from that of an ongoing business?
There is a key difference:
- For a new business: The opening entry records the initial capital and resources brought into the business for the first time. For example, it would show the cash, bank balance, and other assets the owner initially invests.
- For an ongoing business: The opening entry is not new investment but a transfer of closing balances from the previous accounting period. It brings the last year's financial position forward to the new year's books.
5. What happens if the total of assets does not equal the total of liabilities and capital in an opening entry?
An opening entry must always balance based on the accounting equation (Assets = Liabilities + Capital). If the assets and liabilities are brought forward from a previous, balanced Balance Sheet, they will automatically tally. If a difference arises while creating an entry from a list of balances:
- If Assets > Liabilities, the difference is credited to the Capital Account, representing the owner's equity.
- If Liabilities > Assets, the difference is debited to a Goodwill Account, representing the value of the business's reputation being purchased.
6. Why is the opening entry passed in the Journal Proper and not in any other subsidiary book?
The opening entry is passed in the Journal Proper (or General Journal) because it is a non-repetitive, unique entry that doesn't fit into any of the specialised subsidiary books. Subsidiary books are designed for high-volume, specific transactions like cash (Cash Book), credit purchases (Purchase Book), or credit sales (Sales Book). Since the opening entry is a one-time event at the start of the year to set up the ledgers, the Journal Proper is the correct book of original entry for it.
7. How does an opening entry relate to the opening balance in a ledger account?
The opening entry is the source for the opening balances in individual ledger accounts. After the opening journal entry is passed, each item is posted to its respective ledger account. For example, in the opening entry 'Cash A/c Dr.', the amount is posted to the debit side of the Cash Ledger Account as 'To Balance b/d' (brought down). This 'Balance b/d' is the opening balance for that ledger account for the new period.
8. What is the key difference between an opening entry and a closing entry?
The main difference lies in their purpose and timing:
- Opening Entry: Passed at the beginning of an accounting period to bring forward the balances of permanent accounts (Assets, Liabilities, Capital).
- Closing Entry: Passed at the end of an accounting period to close all temporary accounts (revenues, expenses, gains, losses) by transferring their balances to the Trading and Profit & Loss Account. This process helps in calculating the net profit or loss for the period.
