Opening and closing balances

The opening balance is the amount of cash a business has available at the start of a period, such as a month. It is not new money: it is the closing balance from the period before, carried forward.

Working out the closing balance

The closing balance is the cash left at the end of the period. You calculate it as:

Closing balance = opening balance + net cash flow

Net cash flow is the change in cash during the period. If net cash flow is positive, the closing balance rises above the opening balance. If it is negative, the closing balance falls.

For example, a bike repair shop starts April with £850. Its net cash flow for April is +£320, so its closing balance is £850 + £320 = £1,170. That £1,170 becomes May's opening balance. In May the shop has net cash flow of -£380, giving a closing balance of £1,170 - £380 = £790. In June, net cash flow is -£900, so the closing balance is £790 - £900 = -£110.

A negative closing balance

A closing balance can be positive or negative. A negative closing balance is a cash deficit: the business has run out of cash by the end of the period. It may still have payments to make, so it may need short-term finance, such as an overdraft, to cover them until more cash comes in.

The closing balance is not the same as net cash flow: net cash flow is the change during the period, while the closing balance is the opening balance plus that change. A positive closing balance means the business has cash available at that point, and it becomes the opening balance for the next period.