Opening Day Balance Sheet – Accounts Payable
The accounts payable opening balance forms part of the opening balance sheet of the business. Accounts payable are amounts which are owed by the business to its suppliers, they are sometimes referred to as trade creditors.
If a supplier allows a business credit and invoices it for a product or service, and payment is made at a later date 30 days 60 days etc, then while the business owes the supplier the money the outstanding amount is classified as an accounts payable in the accounts of the business.
The accounts payable opening balance is recorded in the balance sheet of the business under the heading current liabilities, which means they are payable within a year.
Accounts Payable Opening Balance in the Financial Projection
The accounts payable included in the opening balance sheet is no different than any other accounts payable, only the timing differs.
The accounts payable opening balance is simply the balance that was there before the first day of the financial projection. If the accounts payable is generated after the first day, it will show up as part of the accounts payable in the appropriate year. The opening accounts payable should not be included in both places as this will result in double counting.
The date on which the financial projection starts is entirely a matter of personal choice, usually it is better to have it consistent with the start of a financial year.
Established Business Plan
For an established business, there will normally be an accounts payable opening balance (assuming the business has purchased on credit terms from suppliers). The value of this opening balance can be found on the latest available balance sheet. The figure to use is the total of the amounts shown under the headings accounts payable, creditors or any other accounts payable related headings.
Startup Business Plan
For a startup business, we recommend the use of the startup costs calculator which produces an opening balance sheet for inclusion in the financial projections template.
The figure to use for the accounts payable opening balance is the accounts payable value shown under the heading opening balance sheet in the calculator. This is effectively the amount of accounts payable the business has when it starts trading, and forms part of the startup funding together with the opening debt and equity injections.
Having entered the accounts payable opening balance, the template calculates the accounts payable at the end of each subsequent year by multiplying the average daily cost of sales for the year by the accounts payable days.
What’s the Next Step?
The next step in producing a five year financial projection for your business plan using our financial projections template, is to enter the opening other liabilities balance in the opening balance sheet of the financial projection.
This is part of the How to Create Financial Projections Guide a series of posts on how our template is used to produce simple financial projections for a business plans.