Opening The Books Of Account
Peter Marshall Bsc (Econ) BA MBIM is a Fellow of the Society of Business Teachers, and an experienced educator in business subjects. He is also a prolific author and his books have been translated and sold worldwide. He lives in London, UK.
Assets, liabilities and capital
When opening the books of a new business for the first time we need to list:
- all its assets
- all its liabilities.
By taking away the value of the liabilities from the assets, we can tell how much capital the business has at the beginning. In other words:
assets – liabilities = capital
Or to put it another way:
assets = capital + liabilities
Accounts as an equation
The accounts of a business always represent such an equation, in which one side is always exactly balanced by the other side. This balancing list of opening assets, liabilities and capital should then be posted to (i.e. entered in) the relevant ledger accounts, by way of a very useful account book called the journal. We will see how to do this when we come to the journal and ledger sections a little later on.
The page on the left shows a typical first page of the journal of a new small printing business, working from a small workshop, and owning a printing machine and delivery van. As you can see, the firm’s assets are £100,000, made up of such things as premises, equipment, and £6,500 cash at bank. We keep a separate account for each of these assets—factory premises account, fixtures and fittings account and so on. The cash account we record in the ledger (cash book division); in the example (bottom left) you can see the £6,500 entered in as an ‘opening balance’.
