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Opening Balance

Meaning of Opening Balance

Posted on July 18, 2021July 24, 2021 by deluxesurveillance

Bookkeeping is an important area in any company. As a founder, you too have to deal with this topic, even if accounting is not very popular with many. An important part of the bookkeeping is the opening balance .

What is the opening balance?

An opening balance sheet is a list of the capital and financial situation of a company. This list must contain everything that is also subject to the general accounting obligation. The opening balance has the advantage that you can easily read from it what financial resources you can plan with for the coming year and how high the resources are that are available to you. But it also serves you to make a comparison with the previous years.

What is its purpose?

An opening balance fulfills various purposes. If you look at them from a formal point of view, the purpose is to review your closing balance sheets for the past financial year. You need to create your closing balance from the figures of your company’s income and expenses . It shows you how your business efforts have gone and what the financial situation of your company is like. With the opening balance, you then start a new financial year.

Another sensible reason is to look at the new financial year. You can see how many financial resources are available to you in the new year. You can also use this balance sheet to see how your company has developed compared to the previous year.

What is its content?

The opening balance consists of an asset side and a liability side ( assets and liabilities ). All capital and assets are listed there. This requires the establishment of an opening balance account, known as the SFBC for short. You have to set this up because you need the balance sheet at the beginning of a year. Here you have to record all the items that you will take over into the new year.

Why does an opening balance have to be drawn up?

In the Commercial Code, the opening balance is also referred to as a financial statement, which represents the relationship between debts and assets . The opening balance must be created because you are using it to check the closing balance for the previous year. You have to create it at the beginning of the new year (fiscal year) and it has to coincide with the closing balance of your previous year. This is important in order to be able to compare your company’s success every year. With the opening balance you can only compare the years and not the key figures on a monthly basis. For this, the BWA, the business analysis, is necessary.

Who is obliged to prepare the opening balance sheet?

In principle, an opening balance sheet is mandatory for all companies and merchants who also have to do double-entry bookkeeping . That means,

  • a company needs at start-up to make an opening balance
  • At the beginning of a new year a company has to make the opening balance

In addition, there are other points that make an opening balance necessary and mandatory. Here are all the reasons at a glance.

  • Starting a new company
  • at the beginning of a new fiscal year
  • Change of ownership of a company
  • Changes in the composition of the shareholders
  • Changes in the list of shareholders
  • in the event of a conversion of the company (e.g. in the event of a merger, split-up, merger, contribution or change of legal form )

If one of these reasons is given, there is an obligation for an opening balance sheet. It doesn’t matter at what point in time either of these reasons occurs. When creating an opening balance sheet as part of a corporate transformation, one speaks of the takeover balance sheet.

At what point does the opening balance have to be drawn up?

In principle, there is no set deadline by the tax office for the preparation of the opening balance sheet. As a rule, however, the tax office grants larger and medium-sized companies a time window of up to 3 months . Smaller companies, for example small GmbHs or a UG , are often given up to 6 months to prepare the opening balance sheet. But even with these deadlines, you shouldn’t wait until the last moment.

Conclusion

In order to be able to prepare the financial statements at the end of a financial year, you need the opening balance sheet . The annual financial statement is also called the closing balance sheet and consists of the offsetting of the income statement and the opening balance sheet . This is how you determine the profit or loss of your company. Without the mandatory opening balance sheet, no annual financial statements are possible.

Opening Balance

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