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 organisation's file is accurate and represents your true financial position. The quickest and easiest way is to enter "opening balance" for each of the relevant Bank Accounts and Accounts in your file.
If you are a new business with no trading history then you do not need to enter opening balances. However, even some activities such as business name registration whilst some time ago may still count. Technically these early deductions or transactions may be the real starting point of your business as a tax entity. Check with your Advisor.
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.
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)
Add your opening balances
- From the Dashboard, click on View > Accounts, then click on the 'Opening Balances' button on the top right
- 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
Unpaid historical invoices
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.
Tax payable (or receivable) adjustments
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:
- Liability: Accounts Payable
- Asset: Accounts Receivable
- Liability: Tax Collected on Sales
- Asset: Tax Paid on Purchase
Manual adjustments you may need to make
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 how 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.
If there are uncleared debits or credits you will need to adjust the opening balance for the Bank Account by the total value of these transactions. This will enable you to reconcile using the Bank Reconciliation report.
Behind the scenes
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.
You can run a General Ledger Detail report to see this transaction recorded as 'AOB'.
There can only be one Opening Balance entry per ledger account.