Opening the books

What it means

Opening the books is the first step of a new period: closing balances on balance sheet accounts carry forward as opening ones. Income and expense accounts start at zero.

Those balances must tie to the approved financial statements. If the statements are corrected after approval, the opening of the new year has to be corrected too.

Opening the books is not the place for corrections. A mistake from last year is not fixed by quietly adjusting an opening balance but by a correcting entry in the new period, and for material errors through an account that keeps prior years’ results apart from the current one.

How it works in practice

When taking over from another accountant, opening balances are agreed item by item: the bank to the statement, receivables and payables to the sub-ledger, assets to the register, stock to the count.

Last year’s result moves to retained earnings or accumulated losses, and the general meeting decides on its distribution. Until then it stays in one place.

For a new s. r. o. the books open on the day it comes into existence, meaning its entry in the commercial register, and the opening position is mainly the share capital and its payment. Formation costs a member paid personally need supporting documents before they can be taken into the books.

What to watch out for

If opening balances differ from the statements by even a cent, the difference travels through the year and surfaces at the next close. Checking the trial balance right after opening is not a task to postpone.

When moving to different accounting software, often only summary balances are carried over, without the open items. Unpaid invoices can then not be matched to payments and the sub-ledger has to be rebuilt by hand, usually at the worst moment before a deadline.