When you first start your file there is no financial information in it. Unless you are a new business, you are likely to have business or personal assets and liabilities (such as bank accounts, loans, plant and equipment etc.) that you need to enter so that your organisations file is accurate and represents your true financial position. The quickest and easiest way is to enter “opening balances” for each of the relevant Bank Accounts and Accounts in your file.
What if I have a new business? Is this necessary?
If you are using your organisation file for a new business that has been created from scratch (i.e. you have no trading history) then you do not need to enter opening balances. However, even a new business may need to enter opening balances depending on how your business is structured and established. A business bank account even with no activity may have bank fees or you may have paid for a business name registration some time ago. Technically these early deductions or transactions may be the real starting point of your business as a tax entity. Check with your Advisor if you are unsure.
Your previous accounting system or last tax return (if changing systems at the beginning of a new financial year) will contain the information you need to correctly fill out this screen. Ask you advisor for assistance if you are unsure what information you need to enter.
Step 1: Gather the following information
- Tax Return for previous financial year
- Balance Sheet as at the last day of your old accounting system
- A list or copies of unpaid invoices received (from suppliers)
- A list or copies of unpaid invoices issued (to customers)
Step 2: Enter you Opening Balances
- Enter the last date of your previous record keeping system into the field provided.
- Enter the value of each Bank Account or Accounts from your balance sheet or tax return. You do not need to enter Income or Expense Accounts if you are converting at the end of your financial year. If you need to add Bank Accounts or Accounts click Add at the top of the screen.
- Enter any equity you have invested in your business. This may be shareholders funds or even directors drawings
- When you have entered all the balances the ‘Remaining Balance’ at the bottom of the screen should be “$0″. If there is an amount then common reasons are mis-typing, your old accounts don’t balance or you have used an incorrect sign in front of a number.
- Click save at the bottom of the list
Step 3: Enter unpaid historical invoices that you have issued or received
You may have invoices issued or received that hadn’t been paid at the time you started your file. It is useful to enter all of these so that you can track them as payments are made or received against them.
Important Note About Entering Historical Transactions
If you enter them, enter them all, including invoices representing outstanding tax payable. In most cases you can then remove (or adjust) the opening balances from the Opening Balance list found in the Accounts screen:
- Loan: Money I Owe
- Asset: Money Owed to Me
- Loan: Tax Collected on Sales
- Asset: Tax Paid on Purchase
If you only enter some of your invoices that were outstanding as at the start of you file then you will need to manually calculate who much to adjust these Opening Balance entries for the above Accounts.
Only enter amounts as negative when they are opposite to their normal sign. For example, you have a Bank Account called Asset: Sample Bank. If for some reason this account was in overdraft then you would enter the amount as a negative.
Not confident? Stuck?
All the reports in your file are inaccurate while you don’t have accurate opening balances and opening entries so it is worthwhile having your accountant check your work so that you start from the right balances.
For the technically minded
The Opening Balances screen creates a transaction for each Bank Account and Account and at the same time creates a balancing entry against the Equity: Historical Balancing Account.
