Opening Balances Homework Answers
Opening balance is the amount that a company holds at the start of a new financial year. It means at the end of a fiscal year Company would have made either profit or loss and they would need to transfer it to the New Year. This is also the first entry that is made when a company starts functioning.
The opening balance can be calculated on a monthly basis for a functioning organization, and the entry can be either debit or credit. The right way of placing accounts is an essential knowledge that students should master and opening balances homework answers would help students to learn the subject.
Understanding opening balance concepts help to keep balance sheet error free from studentâ€™s point of view. Students should know the best opening balance when a firm starts functioning. The Opening balance is necessary when a company changes their accounting system to new one. Then closing balance in the previous accounting system becomes new opening balance of the new accounting system.
Opening balance sheet
The balance sheet is used to track liabilities, assets and owners equity. Assets in everyday language are what the company owns. Ownerâ€™s equity is the amount owner has put into the business and liability is the amount that the company owes.
The closing balance at the end of financial year is recorded as opening balance in the next fiscal year in the balance sheet. Additional entries are made into the balance sheet to find out the new closing balance. Profit and loss statement along with trial balance is used for that.
The student should understand the technical terms that need to be entered on the balance sheet. The student should know to tally the balance sheet and should also know and understand profit and loss statements.
Interpretation of balance sheet would depend on ratios and cash flow statements. The student should know how to calculate the ratios and should also understand why the particular ratio is used.
For example, if the assignment is to find out the profit or loss that has occurred due to advertisement charges, then student should know which ratio to use. There is a lot of technical knowledge involved, and there is no harm in student seeking professional expert help in solving opening balances homework answers.
Important points to know before entering opening balance
- Correct dates of transactions are important in opening balance entry.
- Opening a trial balance is an important process of introducing opening balance.
- The aged debtor report is also an important document for entering opening balance.
- Aged creditor report that shows the list of creditors or outstanding purchase invoice is also an important document for opening balance entry.
- An up to date stock report is also an important document for entering opening balance.
- The opening capital statement is also an important process that should be done in opening balance entry.
- An incorrect or in the accurate entry of data would result in a wrong interpretation of data, and that would lead to wrong analysis. This, in turn, would mar the prospect of the company as shareholders, and people willing to invest may turn off. The company should always aim to present the right financial data to the public.
How to calculate the opening balance
The first step is to find out the closing balance of the previous month. For example, if we want to find out the opening balance of June we need to add the opening balance of May with the income generated in the month of may and subtract the expenses incurred in the month of May. That will give the closing balance of May, and in fact, that would be the opening balance of June.
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