A balance sheet is among essential financial statement that states the current position of the company. Information to construct a balance sheet just like an income statement is accessed from company ledger.
Factors to consider
Therefore, to make a balance sheet consider the following;
Acquiring financial data and balance sheet layout
Get the financial transactions from a ledger and classifying them into assets, liabilities, and owners’ equity. With assets representing all goods and services, a company owns and liability representing the debts. Importantly, in balance sheets, the total assets should equal the total liabilities and following accounting equation Assets= Liabilities +Owner’ Equity.
Choose a specific period
Balance sheets are usually created for a specific period of the year to showcase the company liabilities and assets. Therefore, chose a date your balance sheet is going to cover this can be quarterly period and more.
Design and Format of your balance sheet
At the top of your balance sheet should be a header labeled” Balance sheet, “then the name of the organization should follow and date on which your balance sheet applies.
Commence with Assets section
All assets should be listed, and they should be indexed relative to them being quickly turned into cash. Therefore, current assets will begin since they can be converted easily within a short period. The non-current asset will follow next and usually consists of the business firm value of property, plant, and equipment. Intangible assets like patents and licenses will also be part of the non-current assets. Finally, add all your assets and record them next to the title Total assets.
Preparing the liabilities section
Begin with current liabilities, which are usually due within one year of the balance sheet, then calculate the long-term liabilities, which are debts that are unlikely to be settled within a year. Add your current liabilities with long term liabilities, and the total should be labeled as Total liabilities.
Calculating the Owner’s Equity
On calculating retained earnings, it’s advisable to begin with finding the ending balance of retained earnings from the previous period, add net income deduct dividends paid to investors the results will be retained earnings. To calculate the owner’s equity, accumulate all the contributed earnings, and retained earnings. Finally, to complete the section, add all the total liabilities and total owner’s equity. The total assets should be equal to total liabilities and full owners’ equity for the balance sheet to be deemed as the well prepared.
A balance sheet can be made using MS Excel’s built-in presets. For the separate fields for assets versus liabilities and equities and use summing function, to sum up, the totals in each area.
The total assets in your balance sheet should match the total assets in the company ledger.
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