How can you prepare and present a balance sheet effectively?

1 Step 1: Gather the data

The first step to prepare a balance sheet is to gather the data you need from your accounting records, such as the general ledger, the trial balance, and the income statement. You will need to identify the assets, liabilities, and equity of your business, and classify them into current and non-current categories. Current assets and liabilities are those that are expected to be converted into cash or paid within one year, while non-current assets and liabilities are those that have a longer-term nature. Equity is the difference between the assets and liabilities, and represents the owners' claim on the business.

2 Step 2: Calculate the balances

The next step is to calculate the balances of each asset, liability, and equity account, using the appropriate accounting methods and principles. For example, you will need to apply the historical cost, fair value, or amortized cost methods to measure different types of assets and liabilities, depending on the accounting standards you follow. You will also need to adjust the balances for any depreciation, impairment, or revaluation of assets, and any accruals, provisions, or contingencies of liabilities. Equity is calculated by adding the initial capital, retained earnings, and any other reserves or adjustments.

3 Step 3: Format the statement

The third step is to format the balance sheet according to the standard or preferred layout. The balance sheet can be presented in two formats: the account format or the report format. The account format shows the assets on the left side and the liabilities and equity on the right side, while the report format shows the assets on the top and the liabilities and equity on the bottom. The balance sheet should also include a heading that states the name of the business, the title of the statement, and the date of the statement.

4 Step 4: Check the accuracy

The fourth step is to check the accuracy of the balance sheet, by ensuring that the balances are correct, complete, and consistent with the accounting records and standards. You can use various tools and techniques to check the accuracy, such as cross-checking with other financial statements, performing reconciliations, reviewing journal entries, and applying analytical procedures. You should also verify that the balance sheet balances, meaning that the total assets equal the total liabilities and equity.

5 Step 5: Add notes and disclosures

The fifth step is to add notes and disclosures to the balance sheet, to provide more information and explanation about the items on the statement. Notes and disclosures are important for business reporting, as they help users understand the assumptions, judgments, policies, and risks involved in preparing the balance sheet. Notes and disclosures can include details such as the accounting standards used, the methods and estimates applied, the breakdown and composition of the accounts, the contingent assets and liabilities, and the subsequent events that affect the statement.

6 Step 6: Present the statement

The final step is to present the balance sheet to the intended users, such as managers, investors, creditors, regulators, or auditors. You should present the balance sheet in a clear, concise, and professional manner, using appropriate language, format, and visuals. You should also highlight the main points and insights from the balance sheet, such as the liquidity, solvency, profitability, and efficiency of the business. You should also be prepared to answer any questions or queries that the users may have about the balance sheet, and provide supporting evidence or documentation if needed.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?