The term opening balance can be used for several things, including what your business owns and owes when you first register it and what’s recorded in the business’ general ledger at the start of an accounting period.
Opening balance sheet
When you start a limited liability company, you have to set up an opening balance sheet to record what you have at the beginning. The document shows what the company owns and owes, in other words an overview of assets, equity, and liabilities.
You usually don’t need to get the opening balance approved, but if you have bank deposits when starting up, the bank, your accountant, or an auditor might have to verify that the money stated in the balance sheet is actually in the bank account.
If you’re bringing in equipment, property, or similar as part of the share capital, also known as non-cash contributions, you might need to get the balance approved by an auditor.
The rules will vary depending on what country you’re operating in.
General ledger
You also have to set up a balance sheet as part of the annual report. This balance sheet shows what you had at the start of the accounting period versus what you had at the beginning.
The term opening balance can also be used to refer to what you had at the start of the accounting period. This can be both assets or liabilities. Let’s take an example:
Towards the end of the fiscal year, you receive an invoice from a supplier for $500. The invoice isn’t due until the start of the next fiscal year. You’d take this $500 amount—registered in your accounts payable—and transfer it to the opening balance for the next fiscal year since it’s a debt you still owe.
Bank account
An opening balance can also specifically refer to the amount of money you have in your business bank account—your bank deposits—either when you first start the business, or at the start of an accounting period, such as a fiscal year.
The amount can be both positive or negative.