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 to suppliers, they are sometimes referred to as trade creditors.
To illustrate suppose a supplier allows the business credit. The supplier invoices the business and allows payment to be made at a later date 30 days 60 days etc. Until the invoice is paid the outstanding amount is classified as accounts payable in the accounts of the business.
This opening balance is recorded in the balance sheet of the business under the heading current liabilities. Items classified as current liabilities are payable within a year.
Accounts Payable Opening Balance in the Financial Projection
Accounts payable included in the opening balance sheet are no different than any other accounts payable, only the timing differs.
The opening balance is simply the balance that was there before the first day of the financial projection. Consequently accounts payable generated after the first day will appear in the relevant year’s accounts payable. For this reason you should not include opening accounts payable in both places as it leads to double counting.
The date on which the financial projection starts is entirely a matter of personal choice. Even so 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 opening balance. This assumes the business has previously purchased on credit terms from suppliers. Consequently 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. This calculator produces an opening balance sheet for inclusion in our 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. This amount also 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. It does this 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. The guide is a series of posts on how our template is used to produce simple financial projections 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.