Last editedJun 20212 min read
An opening balance refers to the amount of money a business has at the beginning of a specific accounting period. This period could be a day, a week, a month, a quarter or a year. Calculating an opening balance can also be useful when a business is analysing its performance, or to answer questions from external sources such as investors or the tax authorities.
Different types of opening balance
If a business is just starting up, then the opening balance is the first figure entered into the accounts of that business.
If a business has worked through at least one defined accounting period then the opening balance is the figure that was reached by the end of the previous accounting period, at which stage it is referred to as the closing balance.
Calculating the opening balance
At the start of any business, the opening balance is zero. As the business moves forward the amount spent by the business and the amount owned by the business are added to that balance to create a closing balance at the end of the first designated accounting period. Usually the person starting a business will have funds that they can pay into that business on day one, in which case these funds will represent the opening balance.
An example of an opening balance
James runs a business selling pies. On 1 January 2020 the opening balance of the business, made up of the amount which James deposited to start the business, was £20,000. During the first year of business, which James designated as the accounting period, the business took in £30,000 from customers and ran up £10,000 in expenses. At the end of the year the following calculation was made:
£20,000 plus £30,000 minus £10,000 equals £40,000.
The figure of £40,000 represents the closing balance at the end of December 2020. However, it also represents the opening balance at the start of the next accounting period, i.e. January 2021. Rather than there being a specific formula for calculating an opening balance, therefore, there is a formula, as set out above, for calculating a closing balance, based on money moving in and out of the business. That closing balance is then carried forward to become an opening balance.
How do B/D and C/D apply to the opening balance?
B/D and C/D are abbreviations used in accounting when referring to the opening balance and closing balance of a business.
Balance B/D means “brought down”, and refers to the amount that has been carried forward from a previous accounting period, which is also known as the opening balance. An alternative to B/D is B/F, which is an abbreviation of “brought forward”.
C/D stands for “carried down”, which refers to an amount to be carried down from one accounting period and on to the next. This is also known as the closing balance, which is then carried down to become the opening balance of the next accounting period. An alternative to C/D is C/F, which means “carried forward”.
We can help
Knowing what the opening and closing balances of your business are will help to establish exactly how well things are going. Partnering with a payment platform like GoCardless makes it simple to keep track of the cash flowing into your business and use this to calculate the balance of your business account. Our expertise includes dealing with the more complex aspects such as dealing with ad hoc payments or recurring payments.