How to prepare a balance sheet in 5 steps (with template)

By Indeed Editorial Team

Updated 30 September 2022 | Published 3 January 2022

Updated 30 September 2022

Published 3 January 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

A balance sheet is a financial statement that displays an organisation's assets, equity and liabilities. The primary aim of a balance sheet is to show how much money the company has and to provide information about its financial status. It's easier for you to interpret and quickly see what the company owns and owes from a balance sheet. In this article, we explore the steps to prepare a balance sheet, explain its specific components, provide an example of a balance sheet template and share tips to consider when designing a balance sheet.

How to prepare a balance sheet

Learning how to prepare a balance sheet can help you develop stronger accounting skills. Follow these steps on how to prepare a balance sheet:

1. Decide on the reporting period and timeframe

The date that you indicate on the balance sheet is typically the last day of a month, quarter or year for a financial period. After the reporting period is over, it may take you a few days or weeks to make a balance sheet. Companies that report annually may select a specific date as their reporting date or may use any timeframe, such as quarterly reporting.

2. Identify the assets

You may sum up all the company's assets as of the reporting date. You can list assets in two ways, as individual items or as total assets, which can assist you in categorising and analysing. The listing strategy improves the comprehension of your assets and where they originate from and it may be necessary for the final analysis. Current assets and non-current assets are the two types of assets that you may use in categorising.

3. Identify the liabilities

When analysing liabilities, you may use current or non-current liabilities. You can typically pay liabilities over time by transferring economic advantages such as money, products or services and record on the balance sheet's right side. A liability is an unpaid agreement between two parties to finance operations. To get your overall liabilities, add all of your liabilities for both short- and long-term.

4. Identify shareholders' equity

Shareholders' equity measures how much a company's owners have by investing money or by keeping earnings. Equity can be in the form of ordinary stock, preferred stock, treasury stock and retained earnings on the balance sheet. If a single person owns a business, shareholders' stock may be easy to identify. The calculation may be more complex if the public owns stock, also depending on the many forms of shares that the company issued.

5. Check if the total liabilities and equity balance with assets

It may be essential to compare assets to liabilities plus equity to verify if the balance sheet is perfect. You may combine liabilities and equity shares to achieve the comparison. A balance sheet follows an equation that equalises assets, liabilities and shareholder equity. The goal of balancing a financial sheet could be to find the account's net balance, which you can calculate after a reporting period, as a part of the closing process.

Related: What is financial accounting? (with examples)

Specific components of the balance sheet

The balance sheet equation, which comprises assets, liabilities and shareholder's equity is a factor in identifying the key financial components. Every component consists of multiple sections of the financial details of a company. Balance sheets vary depending on the company. You can add the footnotes of the balance sheet to explain which accounting methods are applicable and to look for errors. The following are the three major items that you can typically find on a standard balance sheet:

1. Assets

A standard component of a balance sheet is a list of the company's assets. Assets are the company's operational commodities. Everything you state in the assets' column is a controllable object that the company can use for operations. You may categorise assets into current and fixed assets and show assets as separate line items. There are two main types of assets on a balance sheet:

Current assets

Assets of this type are things that a company expects to sell or consume within the next year. Current assets include:

  • cash payments

  • accounts receivable payments

  • short-term market instruments

  • inventory

Fixed assets

Fixed assets, or long-lived assets, are assets and property that take more time and efforts to turn them into cash. Fixed assets include:

  • company property

  • market security that is long-term

  • goodwill and other intangible products

  1. Liabilities

You may place liabilities on the right side of your balance sheet, which mostly represents the company's financial side. Liabilities are generally a list of the company's debts. There are various types of liabilities that companies list on their financial sheets, including:

Current liabilities

Current liabilities are liabilities that the company wants to settle in cash within the fiscal year. Current liabilities include:

  • account to pay

  • salaries and wages to pay

  • generated revenue

  • expenses accrued

  • debt which is short-term

Non-current liabilities

Non-current liabilities are longer-term debts that take more than a year to settle. Non-current liabilities:

  • revenue deferred

  • debt that is long-term

  • a lease that is long-term

3. Equity shares

On the same side as liabilities column, you can show equity shares. Mostly, shareholders' equity may be a set sum with a varied interest. A change in equity might show differences in assets and liabilities. Common items in the equity section include:

  • common stock

  • treasury stock

  • preferred stock

  • earnings retained

The basic template for a balance sheet

A balance sheet can be in various formats and still maintain its essential components. When creating your balance sheet, you can use the following template:

[Company name]

[Date of the balance sheet]

Details Values at reporting period Values at previous reporting period

Liability and Equity section

1. Capital (Shareholder)

A. Stock

B. Company reserves

C. Received money

2. Shares detail

Pending money for allocation

3. Fixed liabilities

A. Loans that are long-term

B. Added long-term liabilities

C. Tax deferred liabilities

D. Future liability amount

4. Liability (current)

A. Provisions that are short-term

B. Added current liability

C. Trade payables

D. Loan that are short-term

Sum Total:

Details of assets

1. Assets that are non-current

A. Assets that are fixed

I. Intangible (assets)

II. Tangible (assets)

III. Assets on process

IV. Attained capital

B. Differed tax assets

C. Assets (non-current)

D. Added loan (non-current)

E. Advance long-term loan

2. Assets (current)

A. Receivable trade

B. Investments that are current

C. Cash and equivalent

D. Basic inventories

E. Loans (Both advanced) that are short-term

F. Other current assets

Sum Total:

Tips to consider for a good balance sheet

Learning how to prepare detailed balance sheets and interpret them is essential to pursuing a career in finance, accounting or even business development. Consider these additional tips to make this process easier:

Understandability

Users of the balance sheet may interpret the information quickly if you present information concisely, with supporting footnotes providing more information to aid with clarification. Understandability implies the user has a basic understanding of the company, but it may not cause advanced business knowledge to achieve the understanding of the balance sheet. You can convey complex information to an audience straightforwardly.

Relevance

In the balance sheet, concentrate on providing users with helpful information to influence economic decisions. You can accomplish this by reporting important information whose omission could affect users' economic choices. For example, you may opt to speed up financial procedures in a company to issue financial statements quickly and how you connect to stakeholders getting the balance sheet can improve the information's usefulness.

Reliability

You can show that the information on a balance sheet is accurate to increase reliability. Through adequate disclosure, the information could reflect transactions and asses plans. Check if the information is verifiable and if investors and creditors can trust it. Since a balance sheet may rely on values to interpret data, it's usually a good idea to double-check the numbers before presenting to other stakeholders for decision-making.

Comparability

Comparability feature may help you identify the company's earlier decision while generating a balance sheet. You may compare the information you use to previous financial periods and this allows users to spot trends in performance. Comparability improves financial ratios and your balance sheet might be valuable if it can address the company's issue. If you select a suitable format for your audience and the balance sheet is out according to the organisation's document rules, you can make a comparison easily.

Related: 13 accounting skills to include in your resume

What's the purpose of balance sheet?

A balance sheet can show the company's financial status for a specific period using assets, liabilities and equity. A balance sheet gives insight into whether a company succeeds or fails when you review internally. When you review externally, balance sheet may provide knowledge into what resources are available to a business and how to achieve financing. You can use balance sheet information to determine if to invest in a firm and learn about its financial situation.

What is the balance sheet equation?

Using an equation when creating a balance sheet can help you better organise the company's financial information. You can try to check if the balance sheet is perfect by comparing the assets to the liabilities plus the owners' equity. Here are the most common variations of a balance sheet formula:

  1. Liabilities + shareholder's equity = assets

  2. Shareholder's equity = assets - liabilities

  3. Liabilities = company assets - owners' equity

Related:

  • Retained earnings formula (and how to calculate them)


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