Opening Day Balance Sheet – Accounts Receivable
The opening day accounts receivable balance forms part of the opening balance sheet of the business. Accounts receivable are amounts which are owed to the business by its customers, they are sometimes referred to as trade debtors.
When the business allows its customers credit and invoices them for a product or service and receives payment at a later date (30 days 60 days etc), then while they owe the business the money they are classified as accounts receivable.
The accounts receivable opening balance is recorded in the balance sheet of the business under the heading current assets, that means they are convertible into cash within a year.
Accounts Receivable Opening Balance in the Financial Projection
The accounts receivable included in the opening balance sheet is no different than any other accounts receivable, only the timing differs.
The accounts receivable opening balance is simply the balance that was there before the first day of the financial projection. If the accounts receivable is generated after the first day, it will show up as part of the accounts receivable in the appropriate year. The opening accounts receivable 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 receivable opening balance (assuming the business has traded on credit with customers). 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 receivable, debtors or any other accounts receivable 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 receivable opening balance is the accounts receivable value shown under the heading opening balance sheet in the calculator. This is effectively the amount of accounts receivable the business has when it starts trading, and is funded from the opening debt and equity injections.
Having entered the accounts receivable opening balance, the template calculates the accounts receivable at the end of each subsequent year by multiplying the average daily revenue for the year by the the accounts receivable 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 inventory opening 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 models for a business plan.
About the Author
Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.