In the financial world, an opening balance can mean a number of different things, depending upon what the specific person or business is doing. In business, the opening balance can either be the amount of money that they begin funding the company with, or what an established business begins every month and year with. A private individual, when opening a bank account or credit account, will have an opening balance of the predetermined spending limit or the amount of money that is put into the account. No matter whether business or private financial affairs are concerned, the opening balance is what the person or company has to work with through the year, or the month.
The opening balance of a new company is the amount of funds that are going to be used to get the business up and running. Basically, it is the money that the founders have either taken from their own accounts, or that has been loaned to them, that they will use to purchase supplies and equipment, as well as pay for licensing and insurance requirements. The opening balance in this case is how much money the company has as an initial investment that they can use to start up the company.
An existing company is required, by law, to keep accurate records of their earnings and debts so that they can pay taxes. The opening balance for these companies is the amount of money that they have left to work with for the month, or the year. This is accomplished by using the four accounting forms, but basically means that the amount of profits left over after the expenses are subtracted from the earnings for the given period of time. Of course, assets will have to be accounted for, as well as upcoming payments due, but all this information is shown on the accounting sheets.
A private individual will also hear this term when dealing with financial or lending institutions. When opening a bank account, retirement fund, or various other accounts through a financial institution, the opening balance is how much that the person originally puts into the account. It is also the amount of money, either on a monthly or yearly basis that the person has to work with in order to pay bills or gain interest.
When a person, or a business, obtains credit, the opening balance will be what the maximum spending limit has been set as. It also refers to the amount of money available to be used at the beginning of the month or year. An example of this would be a credit card. The opening balance is what is offered to the person applying for the card, and then it is the amount of money available to them at the beginning of each month. This is easily factored by taking the original opening amount, minus the amount of debits, minus the amount of interest accrued.