Opening Entry - Definition, Types And Examples (2024)

Opening entry is the first transaction documented or carried over from a prior accounting period to the current accounting period. In ongoing business, the previous accounting period’s closing balance is the current accounting period’s opening balance.

Depending on the business, the opening entry may vary on the credit or debit side.

Opening Entry Definition

An opening entry, in accounting, refers to the initial transaction recorded when a new business begins its operations or when a company adopts a new accounting system. It serves as the foundation for maintaining accurate financial records and involves the transfer of assets, liabilities, and equity balances from previous records, if applicable, to the new accounting ledger. This entry marks the starting point for all subsequent financial transactions, ensuring that the accounting books reflect the true financial position of the entity from the outset.

What is Closing Entry?

A closing entry, in accounting, is a crucial step taken at the end of an accounting period, typically a fiscal year. Its purpose is to finalize and summarize the financial activities of the period, ultimately preparing the books for the start of a new accounting cycle.

During the closing process, various revenue and expense accounts are meticulously reviewed and adjusted to ensure they accurately reflect the business’s financial performance over the designated period. Ultimately, these temporary accounts are closed or “zeroed out” by transferring their balances to permanent equity accounts, such as retained earnings.

Opening Entry Example

Example 1

Suppose you start a small stationery store called “Stationery Haven.” To properly begin your accounting records, you invest your savings of ₹50,000 into the business as initial capital. Below is a table illustrating this opening entry:

Example 2

Let’s imagine you’re starting a computer repair shop called “TechFix.” You invest ₹75,000 of your personal savings into the business. Here’s the opening entry presented in a table format:

Opening Entry Questions for Practice

Q1: On January 1, 20X1, XYZ Company started its business with an initial capital of ₹500,000. Prepare the opening entry for this transaction.

Q2: ABCD Services commenced operations on April 1, 20X3, with an initial capital investment of ₹1,200,000. However, the owner decided to defer ₹400,000 of this investment over the next three years. How would you record the opening entry for this deferred capital contribution?

Q3: EFG Ltd. was established as a subsidiary of HIJ Corporation on July 1, 20X4. HIJ Corporation acquired 80% of EFG Ltd.’s shares for ₹2,000,000, and the fair value of the non-controlling interest was ₹500,000. How should the opening entry for this subsidiary acquisition be recorded?

Q4: A sole proprietorship, ABC Enterprises, was established on April 1, 20X2, with an owner’s investment of ₹1,200,000 in cash. Create the opening journal entry for this event.

Q5: PQR Corporation began operations on October 1, 20X5, with an initial capital contribution of ₹2,000,000 in cash. During the first month of operations, it incurred startup expenses of ₹50,000. How would you record the opening entry, considering the startup expenses?

Q6: DEF Corporation, a partnership firm, began operations on July 1, 20X3, with partners A, B, and C contributing ₹300,000, ₹400,000, and ₹500,000 respectively. How would you record the opening entry for this partnership’s capital?

Opening Entry in Journal

In accounting, the opening entry in a journal is a fundamental step that marks the commencement of a new accounting period or the establishment of financial records for a new business entity. Below are key points to understand about the opening entry in a journal:

Initiating a New Accounting Period: The opening entry signals the start of a new accounting period, often corresponding to a fiscal year. It ensures that the books are reset to zero, and ready to capture the financial activities of the upcoming period.

Transferring Balances: In cases where an entity is transitioning from one accounting period to another, or if there’s a change in the accounting system, the accounts from relevant previous accounts are transferred to corresponding accounts in the new period.

Capturing Initial Financial Position: For a newly established business, the opening entry records the initial financial position by detailing the investments made by the owners or shareholders. This typically involves crediting capital accounts to reflect the owner’s equity in the business.

Asset and Liability Tracking: It also records the entity’s initial assets and liabilities, providing a comprehensive view of the company’s financial position from the outset.

Foundation for Subsequent Entries: The opening entry creates a solid foundation for all future journal entries, ensuring that the financial records accurately reflect the business’s financial transactions over time.