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Creating your opening balances
In bookkeeping, an opening balance is either created as an initial balance when starting a new business or brought over from last year’s closing balances.
Opening Balance for a New Business
For a new business, you would typically need to create two accounts for your new opening balance. If your business is a sole proprietorship, these two accounts are the Owners Capital account, which is used for money invested in the company by the owner(s), and a Cash or Current Asset account. For a corporation you would create a Retained Earnings account in place of the Owners Capital account.
If you enabled flowlog’s Books Auto Close feature when creating your new set of books, the Owner’s Capital and Owner’s Drawing accounts will be automatically created for you if you are a sole proprietorship. If you selected “yes” for corporation when creating your set of books, then the Retained Earnings account will be created for you instead.
You can learn more about Books Auto Close feature in the documentation section of flowlog.net
Create entry for Opening Balance
Once you’ve created the necessary accounts, create a credit entry, to increase your Owner’s Capital/Retained Earnings account and debit to increase your Current Asset account, such as your business’ bank account. Be sure to click “save”, and now you have created an opening balance for your new set of books. If you have more than one asset account for your business that requires an opening balance, you can easily create another entry with the appropriate asset account.
Opening balance from income
If you are starting a new business with no initial investments in Owner’s Capital/Retained Earnings, your opening balance would be the initial income that your business makes from a sale. In that case, you would manually create an entry when you make a sale, or, if you are using the invoices feature in flowlog, the entry/entries will be created for you automatically when you create the invoice and mark the invoice as paid.
Opening Balances for an Operating Business
Alternatively, if you already have an operating business and were doing your books in flowlog, the opening balances would simply carry over from the previous fiscal year’s closing balances (as shown on your balance sheet). If you enabled the Books Auto Close feature, flowlog will automatically close your books at the end of the fiscal year and your opening balances will be created for the new fiscal year.
If you are migrating to flowlog from another accounting system (and assuming you closed your books in that system) all you have to do is create the necessary accounts and entries just as we did in our example for a new business. The only difference is you may have a few more accounts (and associated entries) to create, such as liability accounts and multiple asset accounts.
Hope this helps and thanks for watching!
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