How to enter your opening balances for sole traders and partnerships when using accruals basis accounting
This article explains how to enter your opening balances as part of FreeAgent's account setup process if you have a sole trader, partnership or unincorporated landlord FreeAgent account type and your business is using the accruals basis to prepare its accounts.
If you have a sole trader or partnership FreeAgent account type and your business is using the cash basis to prepare its accounts, find out how to enter your opening balances in this scenario instead.
If your business has been trading for a while, you'll have some opening balances to enter when you first begin using FreeAgent. These are your figures as they stood as at your FreeAgent start date. FreeAgent needs to include this brought forward information in your accounting reports.
As brought forward balances don’t impact the tax return for the current year of a sole trader, partnership or unincorporated landlord, a full set of opening balances may not be required. If you’re not sure which opening balances to enter, please speak to your accountant.
If you're a sole trader and you don’t have an accountant, but you’ve managed to work out some but not all of your opening balance figures, you may want to put any difference that you can’t work out to category '968 - Profit and Loss' in FreeAgent. This can be used because as a sole trader you and the business are legally the same, so it’s less important if the amount that the business owes you changes. Please don’t use this approach for any other business type because as a partnership, it’s really important to get the correct profit share between the partners.
If you have a limited company or limited liability partnership FreeAgent account, find out how to enter your opening balances for these account types.
Which opening balances do you need to enter?
If you’re starting to use FreeAgent at the beginning of a new accounting year, you only need to put in balances for your balance sheet accounts, such as money owed to you by your customers. Accounts with numbers 600 to 999 on a trial balance in FreeAgent are balance sheet accounts.
If you’re starting to use FreeAgent mid-way through your accounting year, you may also have entries for the year to date for your profit and loss accounts, such as income the business has earned since the beginning of this accounting year. Accounts with numbers 001 to 599 on a trial balance in FreeAgent are profit and loss accounts.
If you’re moving to FreeAgent from another software package, you should be able to generate a report to view your trial balance as at your FreeAgent start date. For advice on extracting data from other software packages, please refer to that software provider.
Your accountant should be able to supply you with a trial balance (a list of all the balances in your accounts) as at your FreeAgent start date and will be able to advise which entries you need to record in your FreeAgent account. Please note that our support team can’t help you with this as we’re not authorised by HMRC to provide accounting advice.
If your business is VAT registered, we recommend you enter the opening balances before you file your first VAT return as once that VAT return is filed, you won’t be able to edit entries to accounts ‘818 - VAT Reclaimed’ or ‘819 - VAT Charged’. These categories are used to populate your first VAT return in FreeAgent if you start using FreeAgent mid VAT quarter.
What might your opening balances include?
Your opening balances as at your FreeAgent start date may include some or all of the following:
- money your customers owe you (your accountant might call this ‘trade debtors’)
- money you owe to your suppliers (your accountant might call this ‘trade creditors’)
- the balance(s) on your bank account(s)
- money you owe to HMRC for PAYE and NIC, or VAT
- the balance(s) on outstanding loans
How to enter your opening balances
You can either import your opening balances into FreeAgent or enter them manually by following the steps below.
Adding bank account balances
To enter your bank account balances, navigate to the ‘Banking’ tab at the top of the screen, select ‘Bank Accounts’ from the drop-down menu and select the relevant bank account from the list. From the bank account page, select ‘Edit Details’ at the top-right and enter the balance as at your FreeAgent start date. Enter a minus sign in front of the number if the balance is money you owed to the bank, such as an overdraft or loan.
You may have entered the opening bank balance when you set up your account, but we recommend that you check that the figure is correct.
Completing your opening balances using journal entries
You’ll need to record the rest of your opening balances as a set of journal entries.
Navigate to the 'Accounting' tab at the top of the screen and select 'Journal Entries' from the drop-down menu.
From the 'Journal Entries' screen, choose 'Opening Balances' from the drop-down menu.
You’ll see that there is already a set of opening balance journals created. To import your opening balances from a .CSV file, select ‘Import Opening Balances’.
The debit and credit balances of the opening balances should be equal if you’re entering them fully.
If these balances don’t match, there may be an opening balance(s) missing and the value of the difference will be displayed in red below the balances. If you’re not sure which entries are required, please ask your accountant.
Once the debit and credit balances are equal and you’re happy with the opening balances, select ‘Save Changes’ to complete the process.
If you enter your opening balances with a difference between the debit and credit values, FreeAgent will automatically create a suspense account as a balancing entry for the amount of the difference.
To correct this, edit your opening balances and enter the missing opening balance(s). Once the debit and credit balances are equal, FreeAgent will remove the suspense account.
VAT opening balances
The balances you enter will depend on a few scenarios - for example whether the first VAT quarter in FreeAgent is a new one or if you’ve started using FreeAgent mid-quarter, and whether or not you’re on the VAT Flat Rate Scheme. Follow the guidance in the relevant article below:
- Starting VAT figure: new quarter
- Starting VAT figure: mid-quarter (flat rate scheme)
- Starting VAT figure: mid-quarter (not flat rate scheme)
Adding opening profit or loss reserves
Any reserves of retained profits your business has built up over the years need to go in as a credit to account code ‘968 - Profit and Loss’. If the business is carrying a reserve of losses in its accounts as at its FreeAgent start date, that would be entered as a debit entry to account code ‘968 - Profit and Loss’.
If your business is a partnership, instead of entering opening reserves to account 968, put each partner’s share of retained profit that’s still in the business to their capital account, ‘901 - Capital Account’. This would be a debit entry for a retained loss and a credit entry for retained profit.
Adding loan balances
If you’ve received a bank loan or are paying off a hire purchase loan, add a new liability category and enter the outstanding balance as it stood at your FreeAgent start date as a credit to that category. Find out more about how to deal with a loan from a bank or government scheme, or from an individual.
If you’ve provided a business loan to another business or an employee, add a new asset category and enter the outstanding balance as it stood at your FreeAgent start date as a debit to that category. Find out more about how to deal with a loan provided to a business or employee.
Editing your opening balances
If you need to make any changes to your opening balances, find out how to edit your opening balances.