What are Opening Journal Entries in Accounting?

Opening entries are the foundation of accurate accounting records at the start of a financial period. Whether a business is carrying forward balances from the previous year or setting up initial balances for a new venture, these entries establish a clear financial position.

By recording assets, liabilities, and equity at the beginning of the year, opening entries ensure continuity, accuracy, and reliability in financial reporting. 

What Are Opening Entries?

The opening entry is the first journal entry at the start of a financial period. It presents the company’s closing balances from the previous year, including assets, liabilities, and equity, or records initial balances if the business is new, such as invested capital or initial cash. 

Opening Journal Entries Examples

Opening journal entries are used at the beginning of an accounting period to record either the closing balances from the previous year or the initial balances for a new company.

Example 1: Existing Company (Carried from Previous Period)

A company closed last year with the following balances:

• Cash: $15,000
• Accounts Receivable: $5,000
• Furniture and Equipment: $20,000
• Accounts Payable: $8,000
• Owner’s Capital: $32,000

 Opening Journal Entry for the New Year:

This entry carries forward the closing balances from the previous year into the new accounting period.

Example 2: New Company (Starting Balances)

A company is just starting its operations with the following investment:

• Cash: $10,000
• Furniture: $7,000

Opening Journal Entry:

This entry records the company’s initial assets as the owner’s capital contribution.

Related reads you might find helpful: Closing Entries in Accounting: What Are They & Examples

Journal Entries For Opening Balances

When a new accounting period begins, businesses need to carry forward balances from the previous year or set up the initial balances for a new company. Opening journal entries are used to transfer the closing balances of the previous year (or to record the initial balance when starting a new business) into the books of the new accounting period.

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How to Make Journal Entries for Opening Balances

When starting a new accounting period, businesses record opening balances to show either the closing figures from the previous year or the initial balances of a new company. To create these entries, follow these steps:

1- Identify the Balances

• For an existing company, take the closing balances of assets, liabilities, and equity from the previous year’s balance sheet.

• For a new company, determine the owner’s initial capital, cash, and any other assets invested at the start.

   

2- Apply Accounting Rules

• Debit all asset accounts (since assets represent what the business owns).
• Credit all liability accounts (since liabilities represent what the business owes).
• Credit the capital or equity account (since it reflects the owner’s investment).

3- Record in the Journal

Enter all identified balances in the journal at the beginning of the new period to establish a clear starting point for accounting records.

Continue your learning with: How to Prepare Journal Entries

If you're looking for a ready template, download our free journal entry template.

Why Are The Opening Entries Passed?

Opening entries are passed at the beginning of an accounting period to ensure that the business starts the year with accurate and complete financial records. They serve several key purposes:

Carry Forward Balances

Opening entries bring the closing balances of assets, liabilities, and equity from the previous year into the new financial year.

Establish Initial Position

For a new business, opening entries record the initial investment, such as cash, equipment, or other assets contributed by the owner.

Maintain Continuity

Opening entries ensure that accounting records flow smoothly from one period to another without gaps.

Provide a Starting Point

Opening entries create a clear financial snapshot at the beginning of the period, which becomes the foundation for all future transactions.

Support Accuracy in Reporting

By starting with correct opening balances, the business ensures reliable financial statements at the end of the year.

You might also find this helpful: What Is The Journal Entry For Sales: Examples And How To Record

How To Pass The Opening Journal Entry?

Passing an opening journal entry is the process of recording balances at the beginning of a new accounting period. It can be done by following these steps:

1- Collect the Balances

• Take the closing balances of assets, liabilities, and equity from the previous year’s balance sheet.
• If it’s a new company, identify the initial capital and any assets that have been invested.

2- Classify Each Balance

• Assets (e.g., cash, accounts receivable, furniture)
• Liabilities (e.g., accounts payable, loans)
• Capital / Equity (owner’s investment or retained earnings)

3- Apply Double-Entry Rules

• Debit all asset balances.
• Credit all liability balances.
• Credit capital/equity balances.

Explore more: Single Entry VS Double Entry Accounting: A Comprehensive Guide

4- Record in the Journal

Write the accounts in the journal book in proper format, showing debits on one side and credits on the other.

5- Verify the Equation

Ensure that Total Assets = Total Liabilities + Equity after the entry is passed.

You may also like: Adjusting Journal Entries in Accounting: Definition, and Examples

How Enerpize Helps You In Opening Entries

Enerpize is a comprehensive cloud-based ERP and accounting software designed to simplify and automate your financial management tasks. From bookkeeping and invoicing to inventory and payroll, Enerpize allows you to seamlessly record the opening balance from a previous accounting period or set up initial balances for a new company.

Easy Data Import

Quickly bring forward balances from your previous accounting period or import them directly into Enerpize without manual re-entry.

Automated Journal Setup

Enerpize automatically applies the double-entry rules, debiting asset accounts and crediting liabilities and equity, ensuring your books stay balanced.

Customizable Opening Balances

Whether the business is starting fresh or carrying forward balances from an existing one, Enerpize allows entering and adjusting the opening balances easily.

Real-Time Validation

Enerpize checks that your total debits and credits match, reducing the chance of errors in the financial records.

Seamless Continuity

Enerpize enables businesses to start the financial year smoothly, as all the closing balances from the previous year are correctly recorded as opening entries in the new period.