What is the purpose of a commencing entry?

The purpose of a commencing entry is to establish existing asset and liability balances at the start of an accounting period or when a new accounting system is implemented. This entry serves as the foundational point for the accounting records of a business, ensuring that the financial statements accurately reflect the company’s financial position at that specific point in time.

By recording the balances of all assets, liabilities, and equity right at the beginning, it allows for a clear starting point for all subsequent transactions and helps in maintaining accurate and up-to-date financial records. This is essential for the ongoing recording of transactions and for preparing financial statements. Other options focus on specific transactions or summaries rather than establishing the initial state of the company's finances.