A balance sheet is a short form report that shows the assets and liabilities of a company, as well as any equity in the company held by stockholders. It has two parts that must balance in order to be correct. The assets side of the balance sheet must equal the sum total of liabilities plus stockholders' equity. Equity consists of prior-year equity plus any net income from the current year.
Add up the dollar value of the assets of the company, including any new assets that came into the company in the current year. Subtract any assets sold. Assets include cash, equipment, land and structures, among other items. If you use receivables in your accounting, include their value also.
Add up the liabilities of the company. This would include loans, payables and debt of any kind.
Get the dollar value of the net income for the year. Add this number to the stockholders' equity from the prior year. This is the new stockholders' equity.
Set the amounts that you have come up with on the balance sheet. Assets go on top. They can be broken down into categories, such as receivables and cash, land and property and other items. A total is placed at the bottom of the assets. Place the liabilities below the asset total. Break them down in a similar manner, and put a total below. Put stockholders equity below liabilities, then add the total liabilities to the total equity. Put this total below the liabilities and equity as the final total of the liabilities and equity section.
Look at the asset total. It should be the same as the total of liabilities and equity.
Back up amounts on the balance sheet with other paperwork to reconcile the various ledger account balances that make up the parts of the report. The ledger accounts are input by individuals and as such are subject to mistakes. Paperwork such as bank statements, loan documents, accounts receivable and payable, copies of invoices due to or from the company and other things should be used to prove that the amounts in the ledger accounts are accurate, and therefore the balance sheet is accurate.
Create adjustment journal entries to fix errors in the accounts due to entry errors. Key these journal entries in and recheck ledger accounts to see that they now match backup paperwork.
Tara Dooley has written for various websites since 2008. She has worked as an accountant, after-school director and retail manager in various locations. Dooley holds a Bachelor of Science in business management and finance.