Opening Journal Entry – its Rules and Examples

opening journal entry

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.

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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
Date   Particulars
L. F. Debit Credit
01/4/20 Plant & machine A/c Dr. 30,00,000
Land & Building A/c Dr. 50,00,000
Cash A/c Dr. 35,000
Bank A/c Dr. 5,15,000
To Bank loan A/c 10,50,000
To Mortgage Loan A/c 30,00,000
To Capital A/c (Balancing Figure) 45,00,000
( Being all closing balance last year transferred to new financial year)
Working Note: –

Total of Debit – Total of Credit 

= 85,50,000 – 40,50,000

= 45,00,000

So the Capital account is missing in the question so we can post this balance amount in the capital account.

Example No. 3: When the credit side is short but the balance of the capital account is also given

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 and Capital are:

  1. Bank loan A/c = 50,00,000/-
  2. Mortgage Loan =  30,00,000/-
  3. Capital=  40,00,000/-

Solution: –

Journal Day Book
Date   Particulars
L. F. Debit Credit
01/4/20 Plant & machine A/c Dr. 30,00,000
Land & Building A/c Dr. 50,00,000
Cash A/c Dr. 35,000
Bank A/c Dr. 5,15,000
To Bank loan A/c 10,50,000
To Mortgage Loan A/c 30,00,000
To Capital A/c 40,00,000
To Capital Reserve A/c (Bal. Fig.) 5,00,000
( Being all closing balance last year transferred to new financial year)
Working Note: –

Total of Debit – Total of Credit 

= 85,50,000 – 80,50,000

= 5,00,000

The Capital account is given in the question so we cannot post this balance amount in the capital account, so we have to open a new account Capital Reserve A/c.

Example No. 4: When the Debit side is short

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 and Capital are:

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

Solution: –

Journal Day Book
Date   Particulars
L. F. Debit Credit
01/4/20 Plant & machine A/c Dr. 30,00,000
Land & Building A/c Dr. 50,00,000
Cash A/c Dr. 35,000
Bank A/c Dr. 5,15,000
Goodwill A/c (Balancing Figure) Dr. 5,00,0020
To Bank loan A/c 10,50,000
To Mortgage Loan A/c 30,00,000
To Capital A/c 50,00,000
( Being all closing balance last year transferred to new financial year)
Working Note: –

Total of Debit – Total of Credit 

= 85,50,000 – 90,50,000

= – 5,00,000

In this question the debit side is short then the credit side, so we have open new asset account named goodwill account.

Benefits of passing opening journal entry

  • To activate the next session of accounting
  • After passing this journal entry, an accountant can connect all previous record with the current record. Suppose, if we want to pay Rs. 10000, but we have not passed opening journal entry, bank account show a negative balance. So, bypassing opening journal entry before any other journal entry, we can connect the previous year Rs. 100000 balance of bank with current year account of the bank

Question for Practice:

Following is the question for your practice. So please solve it by your own if you have face any difficulty then you can ask me by commenting us in the comment box.

Question No. 1: 

The opening Debit balance is shown as under:

Furniture Rs 60,000/-, Building Rs 10,00,000/-, Mr Rajan Rs 15,000/-, Miss Renuka Rs 25,000/- Plant and Machine Rs. 1,50,000/-

The opening credit balance is shown as under:

Capital Rs. 10,00,000/-, Bank loan Rs. 2,00,000, due to Mr Kartik Rs 50,000/-,

Question No. 2:

Assets side of the balance sheet shows the following balances:

Land And building Rs 15,00,000/-, Furniture Rs 2,50,000/-, Vehicle Rs 3,50,000/- Goodwill Rs 1,00,000/-, Debtors Rs 3,00,000/-

Liabilities side of the balance sheet shows the following balances:

Capital Rs 18,00,000/-, Mr Ram’s Loan A/c 5,00,000/- and creditors Rs 2,00,000/-

Question No. 3:

Assets side of the balance sheet shows the following balances:

Land And building Rs 15,00,000/-, Furniture Rs 2,50,000/-, Vehicle Rs 3,50,000/- Goodwill Rs 1,00,000/-, Debtors Rs 3,00,000/-

Liabilities side of the balance sheet shows the following balances:

Capital Rs 18,00,000/-, Mr Ram’s Loan A/c 5,00,000/- and creditors Rs 1,00,000/-

Thanks for reading the topic

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Check out T.S. Grewal +1 Book 2019 @ Oficial Website of Sultan Chand Publication

T.S. Grewals Double Entry Book Keeping - Opening Journal Entry - its  Rules and Examples

T.S. Grewal’s Double Entry Book Keeping

2 thoughts on “Opening Journal Entry – its Rules and Examples”

  1. is all the liabilities are personal account and what all liabilities comes under real account

    1. Yes, all the liabilities are covered under the personal account according to golden rules of accounting. Because Business can take loans from persons or artificial persons. the examples are given below: –
      Person : – Ram, Shyam , Rahul, Anjali,
      Artificial Persons: – HDFC Bank, PNB Bank, India Infrastructure Finance Company Ltd (IIFCL), Export-Import Bank of India (EXIM Bank), Small Industries Development Bank of India(SIDBI), National Housing Bank (NHB).

      Liabilities are also created on the basis of Representative person: –
      Representative Person means a group of persons.
      Like: – Outstanding salary & wages, Outstanding Rent

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