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How to prepare a balance sheet.
The document explains how to prepare a balance sheet, detailing its definition as a financial statement that relates assets, liabilities, and shareholders' equity. It covers the importance of balance sheets, their components, and includes examples of balance sheet entries and transactions. Additionally, it emphasizes the calculation of assets, liabilities, and equity to reflect the financial standing of a company.
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How to prepare a balance sheet.
- 1. How to Prepare a Balance Sheet UdayJumle PGP 2016-18 IIM Bangalore
- 2. “It sounds extraordinarybut it's a fact that balance sheets can make fascinating reading.” - Mary Archer
- 3. • Financial statementof a company. • What is Balance Sheet? • It’s a statement which relates assets, liabilities and shareholders equity. Assets = Liabilities + Shareholders Equity
- 4. • Importance ofBalance Sheets Indication of financial standing of company. Qualification for taking additional loans. Gauge expected future returns.
- 5. • Calculate Assets: Sum of assets, investments, money and product that company owns. •Creating A Balance Sheet. • Determine Liabilities : Liabilities include operational cost, debt and material expenses. • Evaluate Equity : Equity is calculated after subtracting liability from assets. Revenue generated by company increases equity.
- 6. Assets Liabilities Equity Assets Liabilities Equity +/-Net Income +/- Valuation Changes + Capital contributions Beginning Balance Sheet Ending Balance Sheet • Example of Balance Sheet entry
- 7. Assets (In ₹Millions) Cash ₹126.00 Office ₹25.00 Accounts Receivable ₹3.78 Equipment ₹17.99 Prepaid Insurance ₹1.23 Total ₹174.00 Liabilities Accounts Payable ₹78.11 Salaries Payable ₹12.78 Interest Payable ₹$1.20 Taxes Payable ₹$4.91 Total ₹97.00 Equity Shareholders Equity ₹77.00 Total ₹77.00 • Example of Balance Sheet entry Transaction : Paid ₹20,00,000 for services received in past. Assets = Liabilities + Shareholders Equity 174.00= 97.00+77.00 (In ₹ Millions) (In ₹ Millions)
- 8. Assets Cash( 126.00- 2.00) ₹124.00 Office ₹25.00 Accounts Receivable ₹3.78 Equipment₹17.99 Prepaid Insurance ₹1.23 Total ₹172.00 Liabilities Accounts Payable(78.11- 2.00) ₹76.11 Salaries Payable ₹12.78 Interest Payable ₹$1.20 Taxes Payable ₹$4.91 Total ₹95.00 Equity Shareholders Equity ₹77.00 Total ₹77.00 • Example of Balance Sheet entry Transaction : Paid ₹20,00,000 for services received in past. Credit Cash by 20,00,000 Debit Acc. Payable by 20,00,000 Assets = Liabilities + Shareholders Equity 172.00= 95.00+77.00 (In ₹ Millions) (In ₹ Millions) (In ₹ Millions)
- 9. • Exercise Transaction 1: Received₹ 0.2 Million Cash ( Revenue) for services. Transaction 2: Received ₹ 0.18 Million for services provided in past.
- 10. Assets (In ₹Millions) Cash ( 126.00+0.20+0.18) ₹126.38 Office ₹25.00 Accounts Receivable(3.78- 0.18) ₹3.60 Equipment ₹17.99 Prepaid Insurance ₹1.23 Total ₹174.20 Liabilities Accounts Payable ₹78.11 Salaries Payable ₹12.78 Interest Payable ₹$1.20 Taxes Payable ₹$4.91 Total ₹97.00 Equity Shareholders Equity(77.00+0.20) ₹77.20 Total ₹77.20 • Example of Balance Sheet entry Assets = Liabilities + Shareholders Equity 174.20= 97.00+77.20 (In ₹ Millions) (In ₹ Millions)
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