process for creating a balance sheet

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process for creating a balance sheet..

Answer / sankeerthana

My dear Hary if you are doing accounts thru any accounting
packaage the main thing is to group the ledgers. If you do
correctly the system will process and give the report.
If you are in the practice of manual system you have to
satisfy yourself with the acceptance of credit and debit
side balances. After that you have to transfer all the
nominal account ledger balances to Trading,Profit and Loss
account and Real and Personal accounts to Balance sheet.

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process for creating a balance sheet..

Answer / h.r. sreepada bhagi

Best way to learn finalization of accounts (Preparation of
P&L A/c & B/S) is to work in a Firm/Company fro some time
and learn it from experienced Accounts staff/Managers. You
can not start with preparation of Balance Sheet from the
beginning of your career. Basic requirement is to work and
get to know the documentation & accounting requirements.
Once you are through with it study the P&L & Balance Sheet
of the company for previous years, take guidance from
seniors and give a try yourself.
Since it has lot of implications, it's not something that
can be learned through a forum like this. If you work in any
Chartered Accountants Firm, then it will be the best place
to learn.

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process for creating a balance sheet..

Answer / sandeep

Hai Mr.sreepada.. your right dude..
plz fallow the same rule..

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process for creating a balance sheet..

Answer / praveen

how to prepare and analyze a balance sheet
Examine the concepts of assets, liabilities, and net worth
in a way that will help
you relate them to your business. Learn how to create a
balance sheet for your
company and how to use it to analyze your business’
liquidity and leverage.
how to prepare and analyze a balance sheet 3
This Business Builder will introduce you to accounting
terminology and examine the concepts
of assets, liabilities and net worth in a way that will help
you relate them to your business. It
will guide you through a step-by-step process to create a
balance sheet for your company and
explain how to use a balance sheet to analyze your business’
liquidity and leverage.
what you should know before getting started
The Purpose of Financial Statements
The purpose of financial statements is to communicate.
Financial statements tell you and others
the state of your business. The three most commonly prepared
financial statements for a small
business are a balance sheet, an income statement, and a
cash flow statement.
A balance sheet (also known as a statement of financial
position) is a formal document that
follows a standard accounting format showing
the same categories of assets and liabilities
regardless of the size or nature of the
business. The balance sheet you prepare will
be in the same format as IBM’s or General
Motors’. Accounting is considered the language
of business because its concepts are time-tested and
standardized. Even if you do not utilize the
services of a certified public accountant, you or your
bookkeeper can adopt certain generally
accepted accounting principles (GAAP) to develop financial
statements.
The strength of GAAP is the reliability of company data from
one accounting period to another and
the ability to compare the financial statements of different
companies. The standardization introduced by
commonly defined terms is responsible for this reliability.
To help you get a grip on accounting terminology,
terms are defined as they are introduced and a glossary is
included for reference.
Garbage-in, garbage-out. The integrity of any financial
statement is directly related to the information
that goes into its construction. You may want to consider
revamping your record-keeping, if necessary,
before you begin compiling financial statements.
what to expect
To help you get a grip on accounting terminology,
terms are defined as they are introduced and
a glossary is included for reference.
zions business resource center 4
This Business Builder will explain what data is necessary
for accurate financial statements, but
answering the following questions might be a good place to
start:
• Are the financial records for all (or most) of the
company’s assets (equipment, inventory,
furniture) and liabilities (personal loans, bank loans) in
one place?
• Is there a record of the amounts and sources of cash
expended to begin the business and
acquire inventory?
• Do you know what is currently owed to the bank, creditors,
or others?
• Do you know how much of what is owed is due in the next 12
months?
• Can you estimate what percentage of accounts receivable
may not be received?
Why Create a Balance Sheet?
A balance sheet provides a snapshot of a business’ health at
a point in time. It is a summary of
what the business owns (assets) and owes (liabilities).
Balance sheets are usually prepared at the
close of an accounting period such as month-end,
quarter-end, or year-end. New business owners
should not wait until the end of 12 months or the end of an
operating cycle to complete a balance
sheet. Savvy business owners see a balance sheet as an
important decision-making tool.
Over time, a comparison of balance sheets can give a good
picture of the financial health of a business.
In conjunction with other financial statements, it forms the
basis for more sophisticated analysis of the
business. The balance sheet is also a tool to evaluate a
company’s flexibility and liquidity.
how to prepare a balance sheet
A balance sheet is a statement of a firm’s assets,
liabilities and net worth. The key to
understanding a balance sheet is the simple formula:
Assets = Liabilities + Net Worth
All balance sheets follow the same format: If it is in two
columns, assets are on the left, liabilities are
on the right, and net worth is beneath liabilities. If it is
in one column, assets are listed first, followed by
liabilities and net worth.
Here is a sample balance sheet for the Doodads Company.
how to prepare and analyze a balance sheet 5
Doodads Co. Balanc e Sheet as of Dec 31, 20XX
Assets $$
Current Assets
Cash On Hand $ 300
Cash in Bank $ 2,200
Accounts Receivable $ 1,600
Merchandise Inventory $ 5,500
Prepaid Expenses
Rent $ 1,200
Total Current Assets $10,800
Fixed Assets
Equipment and Fixtures
(less Depreciation) $ 1,200
Total Assets $12,000
Liabilities $$
Current Liabilities
Accounts Payable $ 1,100
Notes Payable, Bank $ 2,200
Accrued Payroll Expenses $ 500
Total Current Liabilities $ 3,800
Long-Term Liabilities
Notes Payable, 1998 $ 5,500
Total Liabilities $ 9,300
Net Worth* $ 2,700
Total Liabilities and Net Worth $12,000
*Assets = Liabilities + Net Worth
Assets
In this section, each type of asset is explained. A
worksheet is provided for your use in assembling
a balance sheet for your business on Page 9.
All balance sheets show the same categories of assets:
current, long-term (fixed) assets, and other
assets. Assets are arranged in order of how quickly they can
be turned into cash. Turning assets into cash
is called liquidity.
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Current assets include cash, stocks and bonds, accounts
receivable, inventory, prepaid expenses
and anything else that can be converted into cash
within one year or during the normal course of
business. These are the categories you will use
to group your current assets. This Business
Builder focuses on the current assets most commonly used by
small businesses: cash, accounts
receivable, inventory and prepaid expenses.
Cash is relatively easy to figure out. It includes cash on
hand, in the bank and in petty cash.
Accounts receivable is what you are owed by customers. The
easy availability of this information is
important. Fast action on slow paying accounts may be the
difference between success and failure for
a small business. To make this number more realistic, you
should deduct an amount from accounts
receivable as an allowance for bad debts.
Inventory may be your largest current asset. On a balance
sheet, the value of inventory is the cost to
replace it. If your inventory were destroyed, lost or
damaged, how much would it cost you to replace or
reproduce it? Inventory includes goods ready for sale, as
well as raw material and partially completed
products that will be for sale when they are completed.
Prepaid expenses are listed as a current asset because they
represent an item or service that has
been paid for but has not been used or consumed. An example
of a prepaid expense is the last month of
rent of a lease that you may have prepaid as a security
deposit. It will be carried as an asset until it is used.
Prepaid insurance premiums are another example of a prepaid
expense. Sometimes, prepaid expenses
are also referred to as unexpired expenses.
On a balance sheet, current assets are totaled and this
total is shown as the line item:
Total Current Assets.
Step 1: Complete the Current Asset Section of the worksheet.
Fixed Assets are also known as long-term assets. Fixed
assets are the assets that produce
revenues. They are distinguished from current assets by
their longevity. They are not for resale. Many
small businesses may not own a large amount of fixed assets.
This is because most small businesses
are started with a minimum of capital. Of course, fixed
assets will vary considerably and depend on the
business type (such as service or manufacturing), size and
market.
Fixed assets include furniture and fixtures, motor vehicles,
buildings, land, building improvements
(or leasehold improvements, if you rent), production
machinery, equipment and any other items with an
expected business life that can be measured in years.
All fixed assets (except land) are shown on the balance
sheet at original (or historic) cost less any
depreciation. Subtracting depreciation is a conservative
accounting practice to reduce the possibility of
overvaluation. Depreciation subtracts a specified amount
from the original purchase price for the wear
and tear on the asset. It is important to remember that
original cost may be more than the asset’s invoice
price. It can include shipping, installation, and any
associated expenses necessary for readying the asset
for service.
Assets are arranged in order of how quickly
they can be turned into cash.
how to prepare and analyze a balance sheet 7
This Business Builder assumes that you are familiar with
depreciation, have already selected a
depreciation method and are comfortable with its
application. If you are not familiar with depreciation, you
can still prepare a balance sheet. It will provide you with
similar benefits, but it will not be in conformance
with GAAP.
This section concentrates on the categories of fixed assets
common to most small businesses:
furniture and fixtures, motor vehicles, and machinery and
equipment.
• Furniture and fixtures is a line item that includes office
furniture, display shelves, counters,
work tables, storage bins and other similar items. On the
balance sheet, these items are listed
at cost (plus related expenses) minus depreciation.
• Motor vehicles is a line item to list the original value
(less depreciation) of any motor vehicle,
such as a delivery truck, that is owned by your business.
• Machinery and equipment are vital to many businesses. If
you are a manufacturing firm, this
could be your largest fixed asset. Like the other fixed
assets on the balance sheet, machinery
and equipment will be valued at the original cost minus
depreciation.
• Other assets is a fourth category of fixed assets. Other
assets are generally intangible assets
such as patents, royalty arrangements and copyrights.
Step 2: Complete the Fixed Assets Section and the Other
Assets Section of the worksheet and
compute the total assets of your business.
Liabilities
In this section, two types of liabilities will be explained.
You will continue to use the worksheet at
the end of this section. Liabilities are claims of creditors
against the assets of the business. They
are debts owed by the business.
There are two types of liabilities: current liabilities and
long-term liabilities. Liabilities are arranged
on the balance sheet in order of how soon they must be
repaid. For example, accounts payable will appear
first as they are generally paid within 30 days. Notes
payable are generally due within 90 days and are the
second liability to appear on the balance sheet.
Current liabilities are accounts payable, notes payable to
banks (or others), accrued expenses (such
as wages and salaries), taxes payable, the current due
within one year portion of long-term debt and any other
obligations to creditors due within one year from the date
of the balance sheet. The current liabilities of most small
businesses include accounts payable, notes payable to banks
and accrued payroll taxes.
• Accounts payable is the amount you may owe any suppliers
or other creditors for services or
goods that you have received but not yet paid for.
• Notes payable refers to any money due on a loan during the
next 12 months.
• Accrued payroll taxes would be any compensation to
employees who have worked, but have not
been paid, at the time the balance sheet is created.
Liabilities are arranged on the balance sheet
in order of how soon they must be repaid.
zions business resource center 8
Long-term liabilities are any debts that must be repaid by
your business more than one year from the
date of the balance sheet. This may include startup
financing from relatives, banks, finance companies
or others.
Step 3: Complete the Liabilities Section of the worksheet.
Compute Total Liabilities.
Net Worth
The formula that defines the balance sheet is:
Assets = Liabilities + Net Worth
The formula can be transposed to yield a definition of net
worth:
Net Worth = Assets - Liabilities
Net worth is what is left over after liabilities have been
subtracted from the assets of the business.
In a sole proprietorship, it is also known as owner’s
equity. This equity is the investment by the owner plus
any profits or minus any losses that have accumulated in the
business.
Step 4: Complete the Net Worth Section of the worksheet.
When this is done, you should have a
completed balance sheet for your business.
Balanc e Sheet WORKSHEE T
Enter your Company Name
here:_____________________________________
Assets
Current Assets
Cash in bank
Accounts receivable
Inventory
Prepaid expenses
Other current assets
Total Current Assets
Fixed Assets
Machinery & equipment
Furniture & fixtures
Leasehold improvements
Land & buildings
Other fixed assets
(LESS accumulated depreciation
on all fixed assets)
Total Fixed Assets
(net of depreciation)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Beginn ing :________ Project ed:________
how to prepare and analyze a balance sheet 9
In the next section, four simple formulas will be introduced
to enhance the information contained on
the balance sheet.
The information in the preceding section will help you
develop a balance sheet of your own.
Liabilities and Equity
Current Liabilities
Accounts payable
Interest payable
Taxes payable
Notes payable, short-term
(due within 12 months)
Current part, long-term debt
Other current liabilities
Total Current Liabilities
Long-term Debt
Bank loans payable
Notes payable to stockholders
LESS: Short-term portion
Other long-term debt
Total Long-term Debt
TOTAL Liabilities
Net Worth
To tal Liabilities
& net worth
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Other Assets
Intangibles
Deposits
Goodwill
Other
Total Other Assets
TOTAL Assets
$
$
$
$
$
$
$
$
$
$
$
$
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