Question

Procedure of preparing balance sheet​

Answer 1

Preparing balance sheet​- Procedures:

Balance sheet is a financial statement of a business entity that reports its assets, liabilities and equity of the shareholders at a stipulated point in time. It provides a base for computing return rates or evaluating the capital structure and financial health of the company.

Along with the statement of cash flows and income statement, balance sheet is one of the important financial statements of a business.

The following are the steps to follow while preparing a balance sheet:

Setting Up Balance Sheet:

Step 1: Use basic accounting equation to create balance sheets.

$[\text{ Assets } =\text { Liabilities }+\text { Owner's Equity }]$

Step 2: Choose the date for the balance sheet.

Step 3: Prepare the header.

Preparing the Assets Section :

Step 1: List all current assets and long-term assets also known as non-current assets

Step 2: Include any intangible assets

Step 3: Add the listed current and non-current assets totals and label the sum amount as “Total Assets."

Preparing the Liabilities Section:

Step 1: Determine current liabilities

Step 2: Calculate all long-term liabilities, also known as fixed liabilities.

Step 3: Add the current liabilities subtotal to the long-term liabilities subtotal.

Calculating Owner's Equity and Totals:

Step 1: Calculate Retained Earnings

Step 2: Calculate the owner's equity

Step 3: Add the “Total Liabilities” and “Total Owner's Equity” figures.