Beginning Balances and Ending Balances for Beginners

Defining Beginning and/or Ending Balances

The beginning balance represents the amount in an account at the start of a period, such as a fiscal year or an accounting period. This amount comes from the previous period’s ending balance or the original investment in the account.

The ending balance, on the other hand, is the balance of an account at the end of a period. It reflects all the transactions that occurred during the period, such as deposits, withdrawals, and interest earned. The ending balance is also the beginning balance for the next period.

When They Are Used

Businesses use beginning and ending balances to track their financial account balances at the start and end of a specific period.

For example, you might track a $10,000 balance in a bank account at the end of January. That ending balance becomes the beginning balance for February, before accounting for any new transactions.

More Information on Balances

The beginning balance represents an account’s balance at the start of a new fiscal year or when you first use an accounting system. The ending balance represents the account’s balance at the end of a fiscal year or another specified period. This does not have to be an entire year. You can track ending balances each quarter, month, week, or day. Most businesses review their balances at the end of each month.

Tracking these balances helps ensure your financial statements accurately reflect your business’s financial position. For example, your balance sheet shows assets, liabilities, and equity at a specific point in time. Your income statement summarizes revenue and expenses over a period. Maintaining accurate account records also simplifies financial reporting and tax preparation. The IRS’s guide to business recordkeeping explains why proper recordkeeping matters.

If you are new to bookkeeping and accounting, consider working with a qualified accountant or bookkeeper. They can help you establish and verify your account balances. You can also explore Aptora’s accounting dictionary to learn more about common bookkeeping terms.

Differences Between a Beginning Balance and an Ending Balance

The difference is just the date. One is the balance at the beginning of the period, such as the month, and the other is the balance at the end of the period.

• A beginning balance and an ending balance refer to the balance of an account at different points in time.
• The beginning balance represents the balance of an account at the start of a period, such as a fiscal year or an accounting period. It is generally carried over from the previous period.
• The ending balance is the balance of an account at the end of a period. It reflects the transactions recorded during that period and becomes the beginning balance for the next period.
• In accounting, both beginning and ending balances are important for tracking and reporting a business’s financial activities. They help businesses prepare financial statements and analyze financial performance.

There is one important distinction: not all accounts carry forward in the same way. Asset, liability, and equity accounts generally retain their balances from one fiscal year to the next, while accountants typically close out revenue and expense accounts at year-end. This is why understanding the difference between balance sheet accounts and income statement accounts matters when setting up beginning balances for a new accounting period.

Specific Examples of Usage

In general, you need accurate beginning balances and ongoing transaction records to properly track and report your business’s financial activities. Ending balances are calculated from the beginning balances and the transactions and adjustments recorded during the period. Here are some examples.

Example of entering a beginning balance:

Let’s say you are setting up accounting records for your business for the first time, and the start date you have chosen is January 1. To establish your company’s financial accounts, you would determine the beginning balances as of January 1. This would include the starting balances for your bank accounts, accounts receivable, accounts payable, and other financial accounts.

For example, if customers owed your business money on January 1, those amounts would be included in the opening accounts receivable balance. Aptora’s guide to accounts receivable as an asset explains how customer balances fit into your business’s financial records.

Example of entering an ending balance:

At the end of your fiscal year or accounting period, you would determine the ending balances for your accounts. For example, at the end of the fiscal year on December 31, you would review the account balances and recorded transactions to prepare financial statements, such as a balance sheet or an income statement.

If you do not establish accurate beginning balances, your financial statements may not accurately reflect your company’s financial position or performance. For instance, if you omit a beginning balance for your bank account, your accounting records may show an incorrect balance at the start of the period, even if you had funds in the account. Similarly, missing transactions or inaccurate ending balances can cause your financial statements to misrepresent your company’s financial activity.

Regularly comparing account balances with supporting records, such as bank statements, can help identify discrepancies. Read our article on the importance of bank reconciliations for more explanation on how reconciling your records with bank statements helps verify cash balances and identify errors.

For additional guidance, the IRS explains how to record business transactions and maintain records that support your business’s income and expenses.