Accounting – Closing Balance

When an accounting period has come to an end, what will the accountants do to the accounts? They will need to close the books so that they can start a new cycle in the next accounting period. In this stage, closing balance refers to the amount of money left in the accounts at the end of an accounting period. The balance can be positive or negative. This represents the total amounts the company has received or expensed within that period. 

Business owners (Also see How Can Business Owners Retain Star Performers?) or the management of the company need to know the closing balances of the accounts to know the amounts associated with various business activities. However, the process of closing the books can sound quite intimidating to most people who do not know accounting well as it involves a lot of steps, yet they cannot leave this task undone when a period has ended. A good way of solving this problem is to hire an accounting firm in Johor Bahru as the professionals can complete the accounting tasks for you without costing you much. If you are one of them who need assistance, please do not hesitate to contact the experts. 

At the end of an accounting period, there will be a positive or a negative sum in the accounts, and the amounts are the closing balances. The accountants will carry these balances to the next accounting period. This means that when they are closing the books, the closing balances for the current accounting period will be the opening balances for the next period. As an instance, if your closing balance for the accounting year ended 31st December 2015 was RM250,000, then your opening balance in 1st January 2016 will be RM250,000 too. 

Note that the term “ending balance” may carry a different meaning in the world of accounting and the world of banking. In accounting (Also see Inherent Risks in Accounting), closing balances are the amounts that one would take forward to the following accounting period. To calculate the closing balance, an accountant (Also see How Do the Accountants Deal with Revaluation?) needs to work out the difference between debit (Also see Which Ledger Accounts Will Normally Have Debit Balances?) and credit balances in a ledger account. This is the amount that should be brought to the next accounting period. 

In banking, on the contrary, closing balances refer to the bank balance a company has in its bank account at the end of a day, a month or a year. This is the debit or credit amount it possesses. Also, note that the ending balance of the bank accounts and the ending balances of the books may not be the same. This is because some of the items in the bank have not been cleared. Some of the examples include uncashed cheques and deposits in transit.