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Adjusting General Ledger Opening Balances

When using a General Ledger to prepare financial reports in-house, it is usual to complete the figures up to a certain level for the end of the financial year and then hand them to a professional accountant for completion. The accountant may make adjustments to the figures that do not affect trading figures for management purposes, such as depreciation, loan accounts and tax, so it is possible to close the financial year in the live system and continue while the tax returns and final reports to shareholders are prepared elsewhere. However, it is still necessary to incorporate the final figures into the live system each year, otherwise the live system will become hopelessly inaccurate.

Once the year has been closed in the Cadzow General Ledger Package for MS-DOS, it is not possible to adjust “last year's” figures, and it is not possible to adjust “this year's” opening figures. Incorporating the correct balances into the system is simply a matter of making adjustments to the balance sheet in the current year.

For example, if the closing balance of a loan account appeared as $23,100DR, this value will be brought forward as the opening balance in the new year. If subsequently the account balance is determined to be $21,300DR, an adjustment of $1,800CR needs to be made.

So how is it possible to make adjustments out of thin air? The answer is that a batch of adjustments are made where the total debits equal the total credits.

The procedure is easier if using a spreadsheet program, but is also simple enough on a piece of paper:

  1. Obtain the final financial figures accurate to the cent. It is preferable they be in the form of opening balances for the new financial year, but closing figures for the previous financial year are adequate.

  2. Make a list of all accounts and their opening balances as per the General Ledger, representing credit balances as negatives and debit balances as positives. The simplest way to obtain the opening balances is to use Menu Two Option A (Display/Print Given Ref No Report (Complete)) and search for the reference O/BAL.

    Note that we are dealing with opening balances which will be exclusively balance sheet items.

  3. Calculate the sum of the account balances, which should be zero. If not, some of the balances are wrong so start again.

  4. Next to each account, put the actual opening balance as per the financials, again with credits as negative values and debits as positive values.

    If a new account has been created that does not appear in the original list, it can be added to the list and its opening balance as per the General Ledger may be assumed to be zero.

    If an account has been removed from the chart, it's opening balance as per the financials is zero.

    If you do not have opening balances, it is possible to use closing balances with some changes. All the balance sheet items remain the same except stock on hand which becomes opening stock in the trading statement. Opening stock on hand in the balance sheet becomes zero. Company profit is added to retained profits in the appropriation statement. Sole trader and partnership capital account closing balances become the opening balances, and the closing balances are set to zero.

  5. Calculate the sum of the account balances, which should be zero. If not, some of the balances are wrong so start again.

  6. Determine the difference between the General Ledger balances and the financial statement balances by deducting the former from the latter.

  7. Calculate the sum of the account differences, which should be zero. If not, some of the balances are wrong so start again.

    You should end up with a table similar to the following:

    AccountNameBalance as per General LedgerBalance as per FinancialsDifference
    2519Opening Stock0.00496,011.00496,011.00
    13100Retained Profits (Losses)-156,155.05-539,765.09-383,610.04
    16011Bank Account 1306,626.91306,626.910.00
    16012Bank Account 2-0.610.000.61
    16013Term Deposit200,000.00200,000.000.00
    16400GST Paid75,775.750.00-75,775.75
    16410GST Received-80,993.37-17,713.6263,279.75
    16420Payroll Clearing Account-2,841.61-2,841.610.00
    16800PAYG Instalments0.0028,883.0028,883.00
    18803Plant & Equipment16,904.0082,969.4166,065.41
    18804Less Provision Depreciation0.00-20,101.00-20,101.00
    18921Land & Buildings61,758.460.00-61,758.46
    18925Office Equipment11,364.950.00-11,364.95
    20231Loan Account 1-182,748.92-207,011.81-24,262.89
    20301Trade Creditors0.00-443,411.85-443,411.85
    20330Provision for Income Tax0.00-35,036.20-35,036.20
    20407Loan Account 2-100,000.00-100,000.000.00
    20409Loan Account 3-92,301.88-137,601.88-45,300.00
    20410Loan Account 4-27,413.16-72,713.16-45,300.00
    20411Loan Account 5-2,409.43-2,409.430.00
    20510Provision for Tax122,433.960.00-122,433.96
    22001Ordinary Shares Of $1-50,000.00-50,000.000.00

  8. The final step is to post the adjustments. Naturally accounts which are not different do not require an entry.

    Each adjustment requires a single entry, as it is not possible to post one giant entry with multiple debits and multiple credits. Each entry uses the Suspense account as the contra, the date will be 01/07/yy and the reference should be "O/BAL". Positive adjustment values are debits and negative values are credits.

    For example, the entry posted for the first item will be:

    Account: 2519
    Contra: 7000
    Date: 01/07/04
    Reference: O/BAL
    Debit: 496011.00
    Credit: 0

  9. When completed, the balance in the Suspense account should be zero. If not, check the entries posted and make corrections as necessary.

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