The ending balance within your accounting system represents the total of all assets, equity, and liabilities. Often referred to as the closing balance, it manifests when concluding an accounting period.
Essentially, the ending balance serves as a comprehensive snapshot of your company’s financial standing. Accessing this information is typically done through the trial balance report in your accounting software. Within this report, you can discern how much of your assets is supported by the company’s equity versus how much is reliant on liabilities.
The trial balance report compiles all accounts in your accounting system, allowing you to choose the specific period you wish to review, such as a year or term. The balance at the report’s conclusion for a given period is recognised as the ending balance.
Calculating ending balances
To calculate the ending balance, one must consider the beginning balance at the period’s start, add any deposits or credits made during the period, and then subtract withdrawals or debits. This formula applies universally, whether dealing with checking and savings accounts, credit card accounts, loans, or investment accounts.
Example: If a checking account starts with a $1,000 balance, receives a $200 deposit, and incurs $500 in withdrawals, the ending balance for the month would be $700 ($1,000 + $200 – $500).
Transition to opening balance
Upon concluding an accounting period, the ending balance seamlessly transforms into the opening balance for the subsequent period. For instance, the ending balance of the 2023 accounting year becomes the opening balance for the 2024 accounting year. This incoming balance offers a glimpse into the company’s financial status at the beginning of a new year, creating a link from one accounting period to the next.
Example: If the ending balance for May in a checking account is $1,300, this amount becomes the beginning balance for June, setting the stage for the new month’s financial activities.