When a company begins its books at the start of a financial period, it needs to bring forward the balances of assets, liabilities, and capital from the previous period.
These balances are passed as opening journal entries to record what the company already owns and owes on the opening date.
Opening Entries:
Opening entries are one-time journal entries at the start of the year that record:
- All assets with debit balances (cash, debtors, stock, machinery, etc.)
- All liabilities with credit balances (creditors, loans, outstanding expenses, etc.)
- The balancing figure, which is the Capital or Retained Earnings.
Format of the Opening Entry:
- Debit all assets (because they have debit balances)
- Credit all liabilities (because they have credit balances)
- The difference (if assets exceed liabilities) is credited to capital.
Example Opening Entry:
Particulars |
Amount (₹) |
---|---|
Cash A/c Dr. | 50,000 |
Debtors A/c Dr. | 75,000 |
Stock A/c Dr. | 1,00,000 |
Machinery A/c Dr. | 2,50,000 |
Furniture A/c Dr. | 50,000 |
To Creditors A/c | 80,000 |
To Bank Loan A/c | 1,20,000 |
To Capital A/c (balancing figure) |
3,25,000 |
Journal Entry
- All assets are debited because they increase the company’s economic resources.
- All liabilities are credited because they increase the company’s obligations.
- The capital account adjusts to balance the equation.
Preparing the Opening Balance Sheet (Vertical Form)
Once opening balances are entered, we prepare the Balance Sheet using the vertical format.
Vertical Format Structure:
The vertical balance sheet is laid out top to bottom, starting with Equity and Liabilities followed by Assets.
Sections in Vertical Balance Sheet
1. Equity and Liabilities
-
Shareholders’ Funds (Capital, Reserves, Surplus)
-
Non-Current Liabilities (Loans, Debentures)
-
Current Liabilities (Creditors, Bills Payable)
2. Assets
-
Non-Current Assets (Fixed Assets, Investments)
-
Current Assets (Stock, Debtors, Cash, Bank)
Example Opening Balance Sheet (Vertical Form):
Particulars |
Amount (₹) |
---|---|
Equity and Liabilities | |
Share Capital | 3,25,000 |
Non-Current Liabilities | – |
Bank Loan | 1,20,000 |
Current Liabilities | – |
Creditors | 80,000 |
Total Equity and Liabilities | 5,25,000 |
Assets | – |
Non-Current Assets | – |
Machinery | 2,50,000 |
Furniture | 50,000 |
Current Assets | – |
Stock | 1,00,000 |
Debtors | 75,000 |
Cash | 50,000 |
Total Assets | 5,25,000 |