A company's opening balance is a financial representation of all of its assets minus its liabilities. You can determine this amount using a balance sheet. However, when it comes to any fixed assets you have, it's important that you record the cost of those assets, rather than their present value.
A company's opening balance for any fiscal period should always be the same as the closing balance from the last fiscal period according to Debitoor. For example, if your closing balance for the last fiscal year was $82,401.22, then this would be your opening balance for the current fiscal year.
Most accounting software packages will generate the opening balance automatically as soon as you start the next fiscal year. However, If you are doing the calculations yourself, or if you are just starting your business, you can determine your opening balance with a balance sheet, using any spreadsheet app.
Balance Sheet Basics
Also known as a statement of financial position according to Accounting Coach, the balance sheet is one of a company's key accounting documents, along with the financial statement, income statement, statement of cash flow and, when it applies, a statement of stockholder equity. If you are just starting your business, your balance sheet should be included as a part of your business plan. It can also be used to help form a budget as Leo Isaac points out.
The balance sheet has three major categories: assets, liabilities and owner's equity.
Adding Up Assets
Assets include any cash your business has on hand, as well as anything that your business has purchased and could sell in the future. It can be helpful to look up an example sheet like this one available from RBC Royal Bank.
The first items to add are called current assets, which include cash on hand or what you have in a cash register, money in the bank, inventory you plan to sell and any expenses that you have pre-paid such as insurance.
The second group of assets is fixed assets. This includes machinery or other business equipment that you own such as furniture, fixtures and any real estate or buildings your company owns.
A third group, usually described as "other assets" on a balance sheet can include any other assets that your business purchased, like a web domain or company logo.
When adding up these assets, ensure that you enter what you paid for them, rather than their market value. If you bought a new delivery van, for example, and paid $30,000 for it, then this is the value to enter, rather than its depreciated value. The same applies to real estate. Enter what you paid for it, rather than its appreciated value. If you did not pay anything for an asset, then it normally shouldn't appear on a balance sheet. For example, if you designed your logo yourself, then it should not be included. If you paid a graphic artist to design it, then you can enter the amount you paid the artist.
Adding Up Liabilities and Owner Equity
Liabilities include anything your business needs to pay to others, like business loans or lease payments. These should be divided into two categories: current liabilities and long-term liabilities. Current liabilities include payments your business will have to make during the current fiscal year including loan payments, taxes and licensing fees, while long-term liabilities are those that extend beyond a year.
For any long-term liabilities your business has, such as a bank loan, you should separate the payments you need to make in the current fiscal year and place those in the current liabilities section, then place the remainder in the long-term liabilities section.
Owner's equity represents any money that you have invested in the company yourself.
Once you have entered all of your liabilities and owner's equity, subtract them from the total of your assets to determine your company's opening balance.