Opening Balances – Planning

Purpose: To ensure ongoing accuracy of your financial data it is vital that the opening balances are entered into the ledgers completely and accurately.

• Depending on the size and nature of your opening data, this could be an involved and time-consuming task.
• You should consider the potential disruption to your normal daily business processes and plan accordingly.
• Things that you need to consider and decisions you need to make are explained below.
• Then set the periods ready to input your opening balances.
• If you decide to enter detailed and historical transactions rather than a summary Trial Balance, ensure that you can produce the required detail from your current system, ideally in electronic form such as a spreadsheet.

We recommend that the tasks for the following three main stages then be done in this order:

Sales Ledger Account Balances
Entries to the Sales Ledger Control Account in the Nominal Ledger will be posted automatically.
See Opening Balances: Sales Ledger

Purchase Ledger Account Balances
Entries to the Purchase Ledger Control Account in the Nominal Ledger will be posted automatically.
See Opening Balances: Purchase Ledger

Nominal Ledger Account Balances
Except the above Control Account Balances that have already been automatically posted.
See Opening Balances: Nominal Ledger

Preparation:
Current Balances
Decide whether you wish to enter simply the summary balances or the detailed transactions that make up these balances and your business activity in the current year.
Decide how to deal with V.A.T. in the transition from your current system to your new product …..
Decide whether you wish to produce your V.A.T. returns from data in your current system or data in your new product or combine data from both.
If you report V.A.T. on a cash accounting basis and you wish for your new product to report the V.A.T., you will need to input sufficient Nett and V.A.T. detail in your opening data to enable the system to calculate the correct figures to include in your V.A.T. returns as your opening customer and supplier balances are cash settled.
Historical Transactions
Decide whether you wish to input closed historical transactions so that they are easily accessible for future reference.

Things that will influence your decisions will include:

• whether you can obtain sufficient detail of your current and historical transactions, ideally in electronic form such as a spreadsheet;
• how you account for V.A.T. – see Invoice or Cash Accounting for V.A.T.;
• whether you can retain your current system for future reference to historical transactions and if there are any cost implications of doing so.

If you are in any doubt, or if you have any specific requirements, you should contact your Prelude Desktop product supplier.

Current Balances

• When you first start using your new software, you may have bank account balances, outstanding debtors and creditors (e.g. unpaid customer and supplier invoices), assets and liabilities, prior income you need to show on your Balance Sheet and Profit & Loss Account.
• To do this, you must enter a summary of these balances and of your past business activities.
• This can take many steps, and may require some knowledge of bookkeeping terminology, like debits and credits, equity, and retained earnings.

If you are not sure of your ability to do this yourself, we recommend that you ask an accountant or bookkeeper to assist you.

First-time users should first read Essential Reading and, in particular, A Rough Guide to Bookkeeping before posting balances created on another system into your new system This will give you a good overview of system design and structure and help put this task into context.

This is an ideal time to cleanse the data in your current system and do some housekeeping. These sections will help you approach this task:
Nominal Ledger & Cashbook
Products & Services
Customers & Suppliers

Decide on an appropriate accounting period and cut-off date in your current business year and ensure that you can obtain the following reports from your current accounting system in sufficient detail to input the opening balances analysis that you require:
– a detailed Trial Balance listing
– a detailed Sales Ledger Account listing – Aged Debtors Report
a detailed Purchase Ledger Account listing – Aged Creditors Report

It would be ideal if these reports could be obtained in a spreadsheet format. Before Inputting the Customer and Supplier details review whether you still need all of the records. If you’re not dealing with them any more, nor likely too in the near future, then consider deleting the record from the spreadsheet.

Foreign Currency

When bringing forward opening balance in foreign currency be aware of the exchange rate on the opening balance date. Ensure the balance sheet rates are set to these values before entering opening balances on the sales, purchase and nominal ledgers. Opening balances on the Sales and Purchase ledgers will be entered in the currency used by the supplier and customer as agreed with them – you will need to ensure that if imported you have created these accounts correctly.

The Nominal ledger is always kept in the home currency – certain accounts may be kept in currency as well – usually bank accounts, foreign deposits and loans. The exchange rates applied should be the same as above reflecting the sterling value on the day. Likewise stock – whether purchased or sold abroad must be maintained in sterling for stock holding values but prices maintained in the currency used – Prelude Desktop provides for this.

V.A.T.

To ensure that you continue to correctly account for and report V.A.T. during the transition from your current system to your new system, you must choose one of the following three options:
1. Combine the V.A.T. reports for existing transactions from your current system with the V.A.T. reports from your new system for new transactions;
There will be cost implications of retaining your current system – e.g. licence fees as well as staff time required to maintain two systems.
If you have used Cash Accounting for V.A.T. in your current system, you would need to retain the current system V.A.T. reports until all the outstanding invoices in your current system are cash settled, or enter the transactions outstanding – see opening balances – Customers and Suppliers.

2. Export detailed data from your current system, for example to spreadsheets, and combine the V.A.T. reports for this data with the V.A.T. reports from your new system for new transactions;
You could decommission your current system, thus saving licence fees.
You may not be able to export the data from your current system in sufficient detail.
There would be costs and risk associated with maintaining the bespoke data for the required period of time.
If you have used Cash Accounting for V.A.T. in your current system, this period of time could be several months – unless you enter opening transactions.

3. Import all data to your new product in sufficient detail to produce all V.A.T. returns completely and correctly;
You could decommission your current system and thus save licence fees and minimise staff disruption.
You may not be able to export the data from your current system in sufficient detail.
The import of data into your new product for this option would be the most detailed and time consuming of all the options, potentially causing disruption to your business and maybe incurring accountant or consultant fees.

Your choice will depend on your preference and the particular circumstances of your business. There is no right answer.

Discuss this with your accountant or bookkeeper or contact your Prelude Desktop supplier.

Set the Periods

Recall that your new system uses period accounting and so you must first set up your Trading Year and Periods accordingly.

This is explained in Opening Balances: Set the Periods – next article.

Historical Transactions

You may want to import historical transactions into your new system rather than retain them in you current system, spreadsheets or other documents.

This would apply, for example, to the P & L analysis for your current year where, instead of a summary opening balance on the Nominal P & L Account, you could import the detailed Nominal Account Analysis that makes up that balance.

Also this could include historical customer and supplier invoices from prior years and reporting periods. This will be necessary if you decide to produce all V.A.T. returns in the transition from your current system to your new system.

The historical transactions may not contribute to the current balances, but could be useful to refer to accounts history and previous business with customers and suppliers.

In order to enter historical transactions correctly, it is important that you can obtain all the necessary detail and that you can segregate this detail into two separate overall listings:
– Detail that relates to prior years and reporting periods.
– Detail that relates to current year and reporting periods.

If you cash account for V.A.T., if any of your V.A.T.-inclusive balances (e.g. customer and supplier invoices) are part-paid, in these listings you must also separately analyse payments and receipts against these V.A.T.-inclusive balances between prior and current V.A.T. reporting periods.

This can be in the form of a listing of all individual payments and receipts or, for each customer and supplier invoice a summary of the total amount paid or received.

If you can obtain the detailed historical records in a spreadsheet format, you may be able to enter these quickly and easily with our CSV Import routines.

Enter the Data

We recommend that the task then be done in the following three main stages in this order:

Sales Ledger Account Balances
Entries to the Sales Ledger Control Account in the Nominal Ledger will be posted automatically.
See Opening Balances: Sales Ledger.

Purchase Ledger Account Balances
Entries to the Purchase Ledger Control Account in the Nominal Ledger will be posted automatically.
See Opening Balances: Purchase Ledger.

Nominal Ledger Account Balances
Except the above Control Account Balances that have already been automatically posted.
See Opening Balances: Nominal Ledger.