How to enter your opening balances when using accruals basis accounting

This article explains how to enter your opening balances as part of FreeAgent's account setup process if your business is using the accruals basis to prepare its accounts.

If your business is a limited company and you’ve 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 LLP, a full set of opening balances may not be required for these business types. If your business is using the cash basis to prepare its accounts, find out how to enter your opening balances when using cash basis accounting.

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.

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’.

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

Please note that you’ll need to have full (level 8) access to your FreeAgent account to be able to enter opening balances.

Where to find your opening balances

If you’re starting to use FreeAgent at the beginning of a new financial year, you only need to put in balances for your balance sheet accounts, such as money owed to you by your customers.

If you’re starting to use FreeAgent mid-way through your financial 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 financial year.

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.

You can export a chart of accounts to find a full list of the categories available in your FreeAgent account and add a new category if you need to.

How to enter your opening balances

You can either import your opening balances into FreeAgent or enter them manually by following the steps below.

You can add opening balances for bank accounts and stock items, then enter the rest of your opening balances using journal entries.

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 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. If you enable a bank feed on or after 30th September 2022 with a supported bank, FreeAgent’s ‘Balance at Bank’ feature will automatically populate your opening bank balance.

Adding stock balances

If you had items in stock as at your FreeAgent start date, create new stock items and enter the opening quantity and value of those items. Please note that stock functionality won't be available if you have an unincorporated landlord account or if you're preparing your accounts using the cash accounting basis.

Completing your opening balances using journal entries

You’ll need to record the rest of your opening balances as a set of journal entries. This includes opening VAT, share capital, profit or loss reserves and loan balances.

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’. Find out more about how to import your opening balances.

Alternatively, to add more opening balances, select ‘Edit Opening Balances’.

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 share capital

If your business is a limited company, you should enter the opening share capital for each shareholder as a credit to account code ‘901 - Capital Account’.

If any of the share capital was unpaid as at your FreeAgent start date, you are likely to also have a debit entry to account code ‘910 - Unpaid Shares’.

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 you have a limited company and need to enter a brought-forward loss for tax purposes, find out how to enter brought forward figures in FreeAgent.

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.