Another accounting period has started, and the accounting books are opened once again. As a newly hired accountant in a young pharmaceutical company, you are tasked with the job of preparing a balance sheet for this company’s accounting period. Despite being trained to perform such tasks in college, however, your inexperience has led you to doubt your capabilities. And because of that, you begin to enlist the help of Mr. Google for a more convenient fix, more convenient than consulting your books from college. As a result, Mr. Google led you to this article to refresh your memory on how to prepare a Balance Sheet.
What is a Balance Sheet?
A balance sheet is a an accounting form used by organizations and institutions to ascertain their financial status and standing. This form lists an organization or institution’s assets and liabilities in order to balance them. Balancing is done by subtracting liabilities from assets which results in the owner’s equity. Balance sheets are one the key documents, along with an income statement, in preparing a financial statement.
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Components of a Balance Sheet
The history of balance sheets goes a way back, as far as the 15th century. An italian, franciscan monk named Luca Pacioli is credited in publishing a textbook on accounting that features a balance sheet. The textbook listed resources separately from the claim against the former. The resources and claim aforementioned are what we know today as the debit and credit. Debit and credit are the basic forms of what composes a balance sheet. Both are subracted from one another which becomes the owner’s equity. To give you a glimpse of what makes a balance sheet, listed below this paragraph are its components and its respective definitions.
Assets are resources that provides future benefit to the owner, whether it’s an organization or an institution. There are two kinds of assets in accounting, the current asset and the fixed asset. Current assets are assets that are currently owned by the owner. Current assets include cash on hand, cash in the bank, accounts receivables, revenue, inventory and prepaid expenses. On the other hand, fixed assets are assets that generate revenue. Fixed assets include furnitures and fixtures, vehicles, buildings, equipment and other capital goods.
Liabilities as defined, are necessary sacrifices that a business makes to another business as a result of past transactions. Liabilities include debts, accounts payables, notes payables, acrued expenses, and tax expenses. Liabilities listed in the balance sheet are subracted from assets which results in the owner’s equity.
3. Owner’s Equity
Owner’s or shareholder’s Equity, as per definition, is the difference between the value of the owner’s asset and the value of the owner’s liability. Owner’s equity are divided in two, namely, the capital and retained earnings. Capital, also known as, the shareholder’s capital, is the amount that the owner or shareholders invested. While retained earnings are the amount that the owner or shareholders wish to keep or retain.
How to Prepare a Balance Sheet Form
Being the newly hired accountant tasked to prepare a balance sheet for this accounting period puts a tremendous amount of pressure on you. That is due to your inexperience in the field, thus doubting your capabilities as an accountant. To help you ease the uneasiness the task has brought upon you, here are the steps to help you prepare a Balance Sheet Form.
Step 1. Gather all Financial Records and Documents
Firstly, gather all the financial records and documents. The financial records and documents needed in the preparation of a balance sheet are receipts, invoices, ledger accounts, and inventory of capital goods owned by the company. These documents contain all the information, such as amounts, facts, and figures, needed in preparing a balance sheet.
Step 2. Download a Balance Sheet Template
Then, download a Balance Sheet Form template so that you can begin preparing a balance sheet. To download a template, choose from an assortment of Balance Sheet templates listed in the samples section. You can find the samples section in the middle portion of this article. Using a ready-made template makes accomplishing the task efficiently and quickly by having a ready-made platform to work from.
Step 3. Edit the Balance Sheet Template
After downloading the template of your choosing, you can now proceed in editing your Balance Sheet Form. In editing your Balance Sheet Form, start by listing the items and value included in your assets and liabilities. Your assets should be listed on the lefthand side of the form and the liabilities listed on the righthand side. After recording, balance both sides to find out the owner’s equity by using this equation: Equity = Assets – Liabilities. Then, list down the owner’s equity, including its components, their corresponding values, and the equity’s total amount below the liability. Lastly, add the total amount of liabilities to the total amount of equity. The sum derived from that should correspond to the total amount of the asset to balance the amount reflected on the sheet.
Step 4. Save and Store an Electronic Copy of the Balance Sheet
After you’re done editing the template and balancing the amount reflected on the sheet, save and store it as an electronic copy in your company’s financial database. Saving and storing an electronic copy of the recent balance sheet allows your superiors and the senior management to access it using their computers. Plus, it also allows you to access previous balance sheets and income statements and compare them to the recent ones for financial analysis purposes.
Step 5. Print the Balance Sheet Form
Aside from storing an electronic copy of the balance sheet, you should also print a hard copy of the balance sheet. A printed balance sheet is the one that you submit to your senior accountants to help them prepare a financial statement.
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