What is an opening balance
The balances in a balance sheet are generated from the all transactions that have occurred in the business since the start of the business. If the business was operating and transacting before the user’s start date, then opening balances will need to be set for the user’s assets, liabilities, and equity ledgers in order for the balance sheet to be accurate. An opening balance in a ledger increases the ledger’s value on the start date to account for what the balance sheet should look like on the user’s start date.
For example, if a user had $500 in a bank account on their start date, an opening balance debiting 500 to the bank ledger would need to be made. Without an opening balance, the bank ledger would incorrectly report $0 on the user’s start date.
Keep in mind that just like journal entries, opening balances must have debits=credits. So in the above example, it would be important to know where the $500 came from in order to credit the correct ledger.
Setting opening balances
There are two ways to set opening balances in Teal. The first is by using the opening balance endpoint. This endpoint assumes that a non-zero balance in a ledger comes from past revenues and expenses, and so it debits/credits a retained earnings opening balance ledger. This is a special ledger that exists solely for the purposes of setting opening balances, and follows a standard convention used by many bookeepers.
The second is to manually create a jornal entry on the start date with an appropriate title such as “Opening balances” and debit/credit the correct amount to the balance sheet ledgers so that the balances are correct on the user’s start date.
Opening balances user interface
It is recommended that you create a dedicated interface for the user to enter their opening balances as this is a common workflow for users that are switching from one accounting platform to another.