OPENING AND CLOSING ENTRIES 1. Kinds of entries.—The entries in the books of accounts which record the history and progress of the business may be grouped into the following three divi sions : (1) opening entries ; (2 ) current entries ; (3 ) closing entries.
As the current entries have already been considered in detail, this chapter will treat only of opening and closing entries.
2. Opening opening entry is one in which the details of starting a business, the rules un der which the business is to be operated, and the rules which govern its financial transactions are disclosed. It occurs only on the formation of a new business, or on the reorganization or purchase of an existing busi ness.
It is important that the opening entry be sufficiently clear to govern the bookkeeper in his work thruout the duration of the business. He must be guided solutely by the provisions for the distribution of profits, disbursements of funds, and similar provisions. In a partnership, for example, an abstract of the partnership agreement should be incorporated in the opening entry; if, on the other hand, the business is a corporation, the kind of stock with the amounts of each, the total capitalization, the name of the com pany, etc., are all required.
3. Illustration of an opening follow ing, for instance, indicates the opening entries to be made when a partnership purchases an existing en terprise : A & B have this day formed a copartnership to be known as the firm of A & B. They have purchased the grocery business of A, located at They will "continue this business and will expand it to such an extent as may seem advisable. The partnership shall continue until either partner wishes to withdraw, or until the partnership is dissolved by law.
A invests $ 8,000 B invests 10,000 Profits and losses are to be shared equally. Interest will not be allowed on investment. A drawing account of $1,200 is allowed for each partner, and interest at the rate of 6 per cent will be charged on any withdrawals exceeding the rate of $100 a month.
It will be noted that this entry gives the complete details of the financial and bookkeeping rules for the partnership. The actual investments in cash and the disbursement of this cash in purchasing the business will be recorded in the cash book. If A, for example, turned in his business in lieu of the cash investment which he was supposed to make, he would receive credit for his investment by means of the following journal entry: Store and fixtures $5,000 Stock 3,000 To A's capital account $8,000 As an explanation of this entry, we would say: To record A's investment in the firm of A & B, whereby he has turned over to this business the fixtures and stock in trade of the business formerly owned by him at as per agreement of sale dated In the same way, if the business purchased, involved the transfer of one hundred or more items of equip ment affecting one hundred or more accounts, we would first make our memorandum entry in the journal, recording the details of the formation of the new enterprise. Then, thru our cash book and our journal, we would record the various investments which the several partners had made.
4. Opening entries for a corporation.—The open ing entries for a corporation take somewhat the fol lowing form: