You may wonder why I refer to the opening balance of 1st April as being the beginning of the new financial year .
This is because all countries of the world have their own start months for the financial period, also known as the fiscal year, and in fact, each country may allow different fiscal periods for different businesses within that country.
In general, all countries use the same financial period of 12 months, and all debits and credits for a financial year will occur within that 12 month period.
t ledger Opening Balances
All asset, liability and equity accounts will have an opening balance
at the beginning of a new financial year.
These balances are the
closing balances brought forward from the previous financial year.
The balances in the asset accounts are usually debits.
The liabilities and equity balances are usually credits.
the above ledger illustration, the bank ledger has an opening balance
This means that at the end of the previous financial year
this business had that much money in their bank account.
revenue and expenses accounts are always cleared at the end of a
financial year so they start the new year with a zero balance.
Now, say if Mr Jones used the same check/cheque to buy several different items such as:
- $15.00 for paper
- $200.00 for a printer and
- $28.00 for a book for personal use
What would the debits and credits look like? See below.