Basics of Beginning and Ending Balances and How They Are Used
This FAQ explains the basics of beginning and ending balances and how they are used in accounting.
Q: What are Beginning and Ending Balances?
I am working with Total Office Manager Enterprise software. I do not know a lot about bookkeeping and accounting. I am new to Quick Total Office Manager. I have the option of entering beginning and ending balances. What is the difference and why would I need to do this?
A: In Total Office Manager, entering beginning and ending balances refers to the process of recording the account balances of your company’s financial accounts at the start and end of a specific period.
For example, you might enter $10,000 for “Rent”, ending January 20XX. “Rent” comes from your Chart of Accounts (COA).
More Information on Balances
The beginning balance represents the total balance of an account as of the start date of a new fiscal year or the date you started using Total Office Manager. The ending balance is the balance of an account at the end of the fiscal year or the end of a specific period. This does not have to be an entire year. You could enter the ending balance for an account each quarter, month, week, or day. Typically, they are added at the end of each month.
Entering these balances is important because it enables Total Office Manager to properly track and report on the financial activities of your company. It helps to ensure that the financial statements produced by Total Office Manager accurately reflect your business’s financial position, and can be used for tax filings, loan applications, and other financial reporting purposes.
If you are new to Total Office Manager and do not have experience with bookkeeping and accounting, it is recommended that you work with a qualified accountant or bookkeeper to assist you with entering these balances accurately. You can also refer to Total Office Manager’s online resources for guidance on entering beginning and ending balances.
Q: What is the difference between a beginning and an ending balance?
A: 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 the balance that was carried over from the previous period or the amount that was originally invested 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.
In accounting, both the beginning and ending balances are important for tracking and reporting on the financial activities of a business. They are used to prepare financial statements, such as balance sheets and income statements, and to analyze the financial performance of the business.
Q: When would I enter one and not enter the other? Please give me an example of using each one.
In general, you would always need to enter both beginning and ending balances for each account in your accounting software to properly track and report on the financial activities of your business. Here are some examples:
Example of entering a beginning balance:
Let’s say you are starting to use Total Office Manager for your business for the first time and the start date you have chosen is January 1st, 2022. To set up your company’s financial accounts in Total Office Manager , you would enter the beginning balances for each account as of January 1st, 2022. This would include the starting balances for your bank accounts, accounts receivable, accounts payable, and other financial accounts.
Example of entering an ending balance:
At the end of your fiscal year or accounting period, you would enter the ending balances for each account in Total Office Manager. For example, at the end of the fiscal year 2022 (December 31st, 2022), you would enter the ending balances for each account to prepare financial statements, such as a balance sheet or an income statement.
If you do not enter both beginning and ending balances, your financial statements will not accurately reflect your company’s financial position or performance. For instance, if you do not enter a beginning balance for your bank account, your financial statements may show a negative balance at the start of the period, even if you had funds in the account. Similarly, if you do not enter an ending balance for an account, your financial statements may not accurately reflect the account’s activity during the period.
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