Have you started a new business? Or, are you considering starting your own business? When you begin your business, there are multiple things that you need to take into account. One of the most important things is to create a balance sheet for your business organization. The balance sheet is important to show the financial transactions taking place throughout the year and thus, it is used as a mechanism to analyze the financial position of the organization. But, you may be wondering how to make a balance sheet. Here are some steps to help you create your balance sheet.
1. Know the Basics
The balance sheet has two separate columns: liabilities and assets. The liabilities include all the debts of the company and the owner’s share capital. The debts include all the borrowing in the form of loans from financial institutions, debentures, and bonds. The assets include all the resources of the organization. This would include long-term or fixed assets such as building, plant and machinery, office equipment and furniture. The short-term, or current assets, includes cash in hand, bills receivable, inventory and prepaid expenses to name a few. The asset section would also include intangible assets such as goodwill, trademarks, copyrights and others. The sum total of all the liabilities equals to the total of all the assets.
2. Prepare the Format
When you prepare the balance sheet, the company’s name should be mentioned above as the header along with the time period for which the balance sheet is made. The time period can be either quarterly or on a yearly basis. However, for convenience purpose, professional accountants recommend preparing the balance sheet for the entire year.
3. List all Your Assets
The next step is to list and calculate the worth of all your assets for the given period of time. Make a separate section for fixed and current assets. The fixed assets are assets that can be used by the business for more than a year. It includes the intangible assets as well. The current assets are assets that can be turned into liquid cash within a short period of time, usually within a year.
4. List all Your Liabilities
Make a list of all the current liabilities for the year. Current liabilities are liabilities that are due within a year. It includes payment to creditors, accrued liabilities, interest on loans and others. Then, make a list of long-term liabilities that includes the capital invested by owners and the borrowings from others. The owner’s capital would include the amount invested by the owners, the retained earning that is available in the form of reserves and surplus and the net profit after the necessary deductions.
5. Calculate Assets and Liabilities
Calculate the total of all your assets and mention it as "Total Assets." Similarly, calculate the total of all your liabilities and mention it as "Total Liabilities."The total of both the columns should be the same. If the amounts do not match, then recheck your balance sheet in case you missed out on any information or made calculation error.
Now you know how to make a balance sheet, so get started with making one for your business. Make sure that you keep a record of all your transaction in order to prepare an accurate balance sheet. Initially, you can find it easy to make a balance on your own but as the business grows and transactions increase you need an accountant to manage the work. In case you are not able to handle the excess work, then outsource your bookkeeping to a professional accountancy firm in Edmonton or hire an accountant for your company.