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How to Prepare a Balance Sheet

The "Balance Sheet", also known as "Statement of Financial Position", shows a company's financial
condition as of a certain date.
Financial condition is presented by reporting how much assets the company owns, how much liabilities it
owes to others, and its equity or capital (assets minus liabilities).
In this tutorial, we will continue the illustration from previous lessons and prepare a balance sheet. Like
the other financial statements we have prepared, we will use this adjusted trial balance: Adjusted Trial
Balance.

Step 1: Gather the needed information


Like in any other financial statement, we need to gather information to be used in preparing a balance
sheet. Any source that shows updated account balances can be used. The most appropriate tool for this,
however, would be the adjusted trial balance.

Gray Electronic Repair Services


Adjusted Trial Balance
December 31, 2014
Account Title
Debit
Credit
Cash
$ 7,480.00
Accounts Receivable
3,700.00
Service Supplies
600.00
Furniture and Fixtures
3,000.00
Service Equipment
16,000.00
Accumulated Depreciation
$
720.00
Accounts Payable
9,000.00
Utilities Payable
1,800.00
Loans Payable
12,000.00
Mr. Gray, Capital
13,200.00
Mr. Gray, Drawing
7,000.00
Service Revenue
9,850.00
Rent Expense
1,500.00
Salaries Expense
3,500.00
Taxes and Licenses
370.00
Utilities Expense
1,800.00
Service Supplies Expense
900.00
Depreciation Expense
720.00
Totals
$ 46,570.00 $ 46,570.00

Step 2: Prepare the heading


The first line contains the name of the company. The second line shows the title of the report. We can use
either "Balance Sheet" or "Statement of Financial Position". The third line indicates the date of the report.
The income statement, statement of changes in equity, and statement of cash flows use For the Year
Ended, For the Month Ended, For the Quarter Ended, etc. However, we cannot use any of those phrases
in a balance sheet since we are not reporting information for a period of time, but rather, information as of
a certain date.
Therefore, we shall use "As of...". Though, some balance sheets omit the phrase.

Gray Electronic Repair Services


Balance Sheet
As of December 31, 2014

Step 3: Report all company assets


From the trial balance, we take all assets and report them in the balance sheet. Current assets are
normally reported first before non-current assets. After which, we will compute for total current assets,
total non-current assets, and total assets. A single line is drawn every time a mathematical operation is
made. The amount of total assets is double-ruled.

Gray Electronic Repair Services


Balance Sheet
As of December 31, 2014
ASSETS
Current Assets:
Cash
Accounts Receivable
Service Supplies
Total Current Assets
Non-Current Assets:
Furniture and Fixtures
Service Equipment
Less: Accumulated Depreciation
Total Non-Current Assets
TOTAL ASSETS

$ 7,480
3,700
600
11,780
$ 3,000
16,000
720
18,280
$ 30,060

Note: The above step requires you to be familiar with assets accounts. The next steps will require
knowledge of liability and capital accounts. If you need a review of different accounts, you may visit this
lesson: Elements of Accounting.

Step 4: Report all liabilities


After the "assets" portion, we will now present "liabilities and capital". We will start by presenting current
liabilities, followed by non-current liabilities. After that, we will take the totals of each as well as the
amount of total liabilities just like what we did for assets.

Gray Electronic Repair Services


Balance Sheet
As of December 31, 2014
ASSETS
Current Assets:
Cash
Accounts Receivable
Service Supplies
Total Current Assets
Non-Current Assets:
Furniture and Fixtures
Service Equipment
Less: Accumulated Depreciation
Total Non-Current Assets
TOTAL ASSETS

$ 7,480
3,700
600
11,780
$ 3,000
16,000
720

LIABILITIES AND CAPITAL


Current Liabilities:
Accounts Payable
9,000
Utilities Payable
1,800
Total Current Liabilities
Non-Current Liabilities:
Loans Payable
12,000
Total Non-Current Liabilities
Total Liabilities

18,280
$ 30,060

10,800

12,000
20,800

Step 5: Report the ending balance of capital after total liabilities


The trial balance above does not show the ending balance of capital. The ending balance of capital can
be taken from the Statement of Changes in Equity. If you have been following our tutorials, we prepared it
before preparing this balance sheet. In any case, any source may be used as long as it gives you
the ending balance of capital.

After including capital, we will take the total amount of "liabilities and capital". That amount is doubleruled.

Gray Electronic Repair Services


Balance Sheet
As of December 31, 2014
ASSETS
Current Assets:
Cash
Accounts Receivable
Service Supplies
Total Current Assets
Non-Current Assets:
Furniture and Fixtures
Service Equipment
Less: Accumulated Depreciation
Total Non-Current Assets
TOTAL ASSETS

$ 7,480
3,700
600
11,780
$ 3,000
16,000
720

LIABILITIES AND CAPITAL


Current Liabilities:
Accounts Payable
9,000
Utilities Payable
1,800
Total Current Liabilities
Non-Current Liabilities:
Loans Payable
12,000
Total Non-Current Liabilities
Total Liabilities
Gray, Capital - ending
TOTAL LIABILITIES AND CAPITAL

18,280
$ 30,060

10,800

12,000
22,800
7,260
$ 30,060

Total assets should be equal to total liabilities and capital. If they are not, then something must have gone
wrong during the process.
There you have it. The balance sheet we have just prepared is for a sole proprietorship business. In a
partnership, several capital accounts will have to be presented one for each partner. In a corporation,
the capital portion is known as stockholders' equity and is made up of capital stock, reserves, and ending
balance of retained earnings.