An opening balance is the initial amount in an account at the beginning of a financial period, such as the start of a fiscal year or a new accounting cycle. It is the starting point for an account and is used as a reference for all transactions that take place during the period.
In an asset account, the opening balance represents the asset’s value at the beginning of the period, and in a liability or equity account, it represents the amount of the liability or equity at the beginning of the period.
For example, in a bank account, the opening balance is the amount of money that is in the account at the beginning of the month. All transactions that occur during the month, such as deposits and withdrawals, will be recorded and added or subtracted from the opening balance to arrive at the ending balance.
It is important to ensure that the opening balance is accurate, as it will affect all the subsequent transactions and the final financial statement.
Opening balance is also used in accounting software and systems, it is used to start a new accounting period, it creates a new general ledger, and starts the new period with the previous period’s closing balance as opening balance for that account.