What is Opening Entry In Accounting

What is Opening Entry In Accounting

What is Opening Entry In Accounting

Accounting concepts such as “asset,” “liability,” “debit,” and “credit” apply only to balance sheet accounts. All these concepts are used in the transaction, which is a description of an event in the business life of the organization, compiled according to the rules of double-entry.

Accordingly, only balance accounts can be used in a transaction. However, insignificant economic events are recorded using off-balance-sheet accounts and according to the rules of simple recording.

What is Opening Entry In Accounting

Opening Entry — Example

Every accountant must know the ways to open the entry. Let’s assume that 1 million dollars were taken from the current account to the company’s cash Desk. As a result of this operation, two types of funds were affected — cash on hand and cash on a Bank account. Money in the cash register increased by 1 million dollars, and in the current account decreased by the same amount. These are two phenomena of this operation.

In accounting, this operation is reflected by the record, first, in the debit account “cash” because of this account active and inactive accounts increasing impact on both the debit and, secondly, on the credit of the account “Settlement account” as this account is also active, and reduction in the active accounts are recorded on credit. In general, the record of this business transaction has the following format:

Cash account debit — 1,000,000 dollars. The credit of the “Current account” account — 1,000,000 dollars.

Opening Balance Journal Entry

Account entries start with the initial balance. Active accounts have a debit balance, while passive accounts have a credit balance. Balance (it is saldo – calculation, balance) – the account balance transferred to the new period. In accounting, it is customary to count the balances on the first day of the new month to increase the preciseness of calculations.

What is Opening Entry In Accounting

The Accounting Equation

The balance sheet equation is a generalized record that allows you to compare the property of an enterprise (its assets) with the sources of its formation (the owner’s capital and liabilities), calculated in terms of value on a certain date. It combines the economic content of accounting (what is taken into account) and its legal aspect (who owns the property of the enterprise).

There are several forms of recording:

  • assets = liabilities and shareholders ‘equity;
  • assets-liabilities = shareholders’ equity;
  • assets – shareholders’ equity = liabilities.

A Bank is a commercial institution that attracts funds from legal entities and individuals and places them on its behalf on the terms of repayment, payment, and urgency, as well as performs settlement, Commission-intermediary, and other operations.

What is Opening Entry In Accounting

Example of New Business Opening Entry Journal

The following is a typical example of double-entry from the journal. Cash withdrawals from the Bank to the cash register are recorded based on the nature of the double-entry accounting transaction: Debit of the “cash” account — Credit of the “Current accounts” account.

Both accounts are active, respectively, in the debit account “cash” reflects the increase in cash on hand, and loan accounts and account – decrease funds in the payment account.

The size of the organization’s assets does not change; only the structure of assets changes (non-cash money has become cash).

What is Opening Entry In Accounting

Examples of Popular Double Entry Bookkeeping

Here you can follow an example of a double-entry for purchasing an item. The debit of the “Goods” account — Credit of the “Payments to suppliers and contractors” account. The “Goods” account is active, and its debit means an increase in the asset (in this case, goods). 

What is Opening Entry In Accounting

The “Payments to suppliers and contractors” account is active and passive. In this case, the credit of this account shows an increase in the organization’s accounts payable for payment for delivered goods in bookkeeping.