A balance sheet is a financial statement that looks at an organization’s assets, liabilities and equity at the end of a specified date. The three main entities of the balance sheet are assets, liabilities and equity. These three entities give shareholders an idea as to what the company possess and owes, as well as the sum of capital provided by investors. The information provided on the statement must match the following formula:
Total assets = Total liabilities + Equity
It is most commonly used as the foundation for ratio analysis, to decide the liquidity of a company. The assets, liabilities and equity are each broken down into several smaller accounts that represent the details of a company's finances.
The two most common formats used in creating balance sheet are the vertical and horizontal balance sheet. The vertical balance sheet presents all the items on the left side of the page in a single column. The horizontal balance sheet presents the asset line items listed below the one column and liabilities and equity items in a another column. It is easy to compare periods when all balance sheet items are presented in a vertical manner. The asset account includes various other accounts in it, for example, cash, accounts receivable, land, etc. The liabilities and equity account consists of small accounts, for example accounts payable, accruals, retained earnings, etc.
Making a balance sheet can help you keep track of your organization’s financial position at a certain period. The balance sheet you create will be tailored to your regular accounting needs. It is considered that only a professional can make a balance sheet, but by following the steps below you can also create a balance sheet.
Step 1: The basic program you can use to create a balance sheet is Microsoft Excel. Open excel, add the title “Balance Sheet” at the top of the page. Under it, list the given name of the organization. Add the effective date of the balance sheet under the heading.
Step 2: Create the asset section at extreme left below the header. List all the asset items and add a total asset field just below the last item in the asset section.
Step 3: Create the liabilities section at extreme left below the asset section. List all the items and add a total liabilities field at the end of the section.
Step 4: Create the equity section at extreme left below the asset section. List all the items and add a total equity field at the end of the section.
Step 5: Now on the next column, write the value of each account. Name this column as the date of the last day of the accounting period. For example, it can be 31, December 2013. Set up a formula to total the value of all accounts in the asset section beside the total field at the end of this section.
Step 6: Similarly follow the previous step for the liabilities and equity section. Now you can add another column to enter the values of the all the accounts during the next accounting period.
Step 7: If all amounts are properly inserted you will see that the total asset is equal to the total of liabilities and equity of the balance sheet. If it’s not equal, then either you have inserted the wrong amounts or there was an error in setting up the formulas.
1: It can be puzzling, even for financial experts, since assets and liabilities fall into dissimilar categories. The most common mistake made on balance sheets applies to classifying assets and liabilities.
2: Take into considerations all the items needed to full fill your balance sheet and properly record all your invoices. You can use excel to categorize your balance sheet items using borders and colors.
3: If you are not a person who has only a minimum knowledge about accounting, it is recommended to download a template that suits your needs for your daily accounting. The balance sheet can be very sophisticated in some templates, try to avoid using them.
4: Large corporations release their financial statements every year; they usually include a two year layout. It represents changes in the balance sheet for the last three years.
5: There are various accounting principles followed in preparing a balance sheet. You must use the most acceptable format required by the stakeholders.