The balance sheet is one of the three financial statements, other than the income statement and statement of cash flows (Also see What is the Relationship between the Profit and Loss Statement and the Balance Sheet?). Some of the business owners may choose to do the accounting tasks by themselves, and when preparing the balance sheet, they need to follow some steps to generate it accurately. However, if they are not familiar with accounting, this can be a challenging task for them. Thus, if they are not sure how they should prepare the balance sheet for their companies, they should seek help from an accounting firm in Johor Bahru and let the professionals complete this task.
When preparing a balance sheet, the first thing you have to do is to print the trial balance. No matter what accounting software you are using, you will see the trial balance in the software package. If the system that you use is manual, you should generate the trial balance by moving the ending balance of all the general ledger accounts (Also see Accounting – General Ledger Reconciliation) to another spreadsheet.
Then, you need to make adjustments on the trial balance. Typically, you need to adjust the company’s preliminary trial balance to make sure that the balance sheet complies with the applicable accounting frameworks, such as IFRS or GAAP. The process of adjusting the trial balance requires the use of adjusting entries. You should record all the adjusting entries you have made as this allows the auditors to identify the reasons of you doing so.
The next step is to remove all expense and revenue accounts. The accounts for assets (Also see What are Other Current Assets?), liabilities, equity, expenses, revenues, losses and gains are all included in the trial balance. You need to remove all the accounts from the trial balance, keeping only the assets, liabilities as well as equity accounts. By the way, to construct an income statement, you will need to use the accounts that you have removed.
After that, you need to aggregate the accounts left. Usually, the trial balance has much more line items than that of the balance sheet. Thus, you need to aggregate the line items of the trial balance into those that you would use in the balance sheet. As an instance, you may see some different cash accounts in the trial balance, and what you need to do is to aggregate them into one “cash” line item in the balance sheet. Some line items that you will usually see in your company’s balance sheet are common stock, cash, retained earnings, accounts payable, accounts receivable, fixed assets, inventories, other assets, debt, accrued liabilities, other liabilities and so on (Also see Where Should You Record the Accruals on Your Balance Sheet?).
Checking the balance sheet is a crucial step when preparing the balance sheet. You need to confirm that the sum of all the assets in your balance sheet and the sum of all the liability and equity accounts are the same.
Lastly, you need to present the results in the balance sheet format. You should rewrite the resulting balance sheet by using the format which is necessary for presentation. As an instance, you may use the comparative format, which means that in the report, you will list the financial position of your company at different dates side-by-side.