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Opening Balances: Where does it all end up? Part I

This post is part of the Opening Balances blog series.

With any systems’ implementation, there comes a time where the closing balances from the legacy system become the opening balances in the new system. This article explains various methodologies that are available for this stage of the implementation and explains the pros and cons of each.

To set the framework – let’s say that we have the following balances/information to bring into the new system:

  1. Open Customer Invoices (Accounts Receivables)
  2. Open Vendor Invoices (Accounts Payable)
  3. Closing Stock Quantity and Cost Value (Inventory)
  4. General Ledger Balances (The closing balances of all the G/L accounts. The total balance must follow the accounting equation, which is Assets = Liabilities + Equity)

The items # 1, 2 & 3 on the list above have their own sub-ledger as well as the total represented by the G/L account.

This means that the balances in these control accounts may double up, as these accounts will be affected once for the sub-ledger import then for the G/L balance import.

The objective is to create the sub-ledger for customers, vendors, and stock, plus import all G/L balances.When we import the sub ledger, it will impact the AR, AP & Inventory Control accounts. The balances of these accounts will also be included in the G/L balance otherwise the accounting equation will not be balanced. This means that the balances in these control accounts will double up as these accounts will be affected once for the sub-ledger import then for the G/L balance import.

There are two ways to work around this problem:

Create a new G/L account as a balancing account

In this method, a new G/L account is created (let’s call it a suspense account). When sub ledger balances are brought in, the balancing side is posted to this suspense account. When G/L balances are brought over, the balances in the control accounts are also sent to the suspense account, bringing the balance back to zero.

Use the same control account as the balancing account

In this method, the balancing entries for the sub ledger are also sent to the same control account. This means that when the sub ledgers are imported, the G/L balance in the relevant control G/L accounts will still be zero. The G/L balances can then be brought over as per normal.

Both of these methods have their advantages and disadvantages.

Find out more about this, and my personal favourite, in my next blog…