financial statements.
How many methods are there for preparing Balance Sheet?
Answers
HOW TO PREPARE A BASIC BALANCE SHEET
Here are the steps you can follow to create a basic balance sheet for your organization. Even if some or all of the process is automated through the use of an accounting system or software, understanding how a balance sheet is prepared will enable you to spot potential errors so that they can be resolved before they cause lasting damage.
1. Determine the Reporting Date and Period
A balance sheet is meant to depict the total assets, liabilities, and shareholders’ equity of a company on a specific date, typically referred to as the reporting date. Often, the reporting date will be the final day of the reporting period.
Most companies, especially publicly traded ones, will report on a quarterly basis. When this is the case, the reporting date will most usually fall on the final day of the quarter:
Q1: March 31
Q2: June 30
Q3: September 30
Q4: December 31
Companies that report on an annual basis will often use December 31st as their reporting date, though they can choose any date.
It's not uncommon for a balance sheet to take a few weeks to prepare after the reporting period has ended.
2. Identify Your Assets
After you’ve identified your reporting date and period, you’ll need to tally your assets as of that date.
Typically, a balance sheet will list assets in two ways: As individual line items and then as total assets. Splitting assets into different line items will make it easier for analysts to understand exactly what your assets are and where they came from; tallying them together will be required for final analysis.
Assets will often be split into the following line items:
Current Assets:
Cash and cash equivalents
Short-term marketable securities
Accounts receivable
Inventory
Other current assets
Non-current Assets:
Long-term marketable securities
Property
Goodwill
Intangible assets
Other non-current assets
Current and non-current assets should both be subtotaled, and then totaled together.
4. Calculate Shareholders’ Equity
If a company or organization is privately held by a single owner, then shareholders’ equity will generally be pretty straightforward. If it’s publicly held, this calculation may become more complicated depending on the various types of stock issued.
Common line items found in this section of the balance sheet include:
Common stock
Preferred stock
Treasury stock
Retained earnings
5. Add Total Liabilities to Total Shareholders’ Equity and Compare to Assets
To ensure the balance sheet is balanced, it will be necessary to compare total assets against total liabilities plus equity. To do this, you’ll need to add liabilities and shareholders’ equity together.
Here's an example of a finished balance sheet in the attachment:
