Opening Journal Entry - its Rules and Examples

The opening journal entry is recorded at the time of opening of the books of the current year if the business working from the previous year or number of previous years.

What is Opening Journal Entry?

The opening journal entry is that journal entry which is recorded at the time of opening of the books of the current year to brought forward the balance of accounts of the previous years but only when, if the business has worked in the previous year(s). With the help of it, we can transfer all balance of the accounts of Assets, Liabilities and Capital of the previous year to the current year. In other words, According to the going concern principle of accounting, The business has a long life means for so many numbers of financial years. So, that's why every accountant finalizes the accounting books of the business at the end of each financial year. These accounting books carry all final/closing balances of all accounts of Assets, Liabilities, and Capital. In the next financial year, an accountant has to transfer this closing balance to the current year by posting a journal entry, this journal entry known as an Opening Journal Entry. Subscribe our Youtube Channel

Rules of Opening Journal Entry: 

There will be two rules of the opening journal entry one is for debit and another is for credit. The rules guide us to debit or credit accounts. These are shown as follows: -

Rule of Debit,

Debit the closing balance of all Assets accounts because assets account always have a debit balance. If you don't know the meaning of assets then please check our article of assets. 

Rule of Credit:

Credit the closing balance of Liabilities and Capital because those accounts which have credit balance known as liability for the business. you can check the meaning of liabilities by clicking here. 

Example of Opening Journal Entry:

we will cover the four concepts in the following 4 examples: -

Example No. 1: When Both sides total is equal to each other

Balance sheet year ending 31/03/2020 shown the following balances post it to next financial year: Closing Balances of Assets are:

1. Furniture & Fixture = 50,000/-
2. Plant & machine = 2,50,000/-
3. Land & Building = 25,00,000/-
4. Vehicle = 3,30,000/-
5. Copyright = 50,000
6. Debtors = 80,000/-
7. Cash = 35,000/-
8. Bank = 2,75,000/-

Closing Balances of Capital and liabilities are

1. Capital = 9,90,000/-
2. Bank loan A/c = 15,00,000/-
3. Mortgage Loan =  10,00,000/-
4. Creditors = 80,000/-

Solution: -

Journal Day Book

Date	Particulars		L. F.	Debit	Credit
01/04/20	Furniture & Fixture A/c	Dr.		50,000
	Plant & machine A/c	Dr.		2,50,000
	Land & Building A/c	Dr.		25,00,000
	Vehicle A/c	Dr.		3,30,000
	Copy right A/c	Dr.		50,000
	Debtors A/c	Dr.		80,000
	Cash A/c	Dr.		35,000
	Bank A/c	Dr.		2,75,000
	To Capital A/c				9,90,000
	To Bank loan A/c				15,00,000
	To Mortgage Loan A/c				10,00,000
	To Creditors A/c				80,000
	( Being all closing balance last year transferred to new financial year)

Working Note: -

Total of Debit - Total of Credit = 35,70,000 - 35,70,000 = 0

Example No. 2: When the credit side is short and the balance of the capital account is missing:

Balance sheet year ending 31/03/2020 shown the following balances post it to next financial year: Closing Balances of Assets are

1. Plant & machine = 30,00,000/-
2. Land & Building = 50,00,000/-
3. Cash = 35,000/-
4. Bank = 5,15,000/-

Closing Balances of liabilities are

1. Bank loan A/c = 50,00,000/-
2. Mortgage Loan =  30,00,000/-

Solution: -

Journal Day Book