how to prepare a balance sheet

How to Prepare a

Balance Sheet

Uday JumlePGP 2016-18

IIM Bangalore

“It sounds extraordinary but it's a fact that balance sheets can make fascinating

reading.” - Mary Archer

• Financial statement of a company.

• What is Balance Sheet?

• It’s a statement which relates assets, liabilities and shareholders equity.

Assets = Liabilities + Shareholders Equity

• Importance of Balance Sheets

Indication of financial standing of company.

Qualification for taking additional loans.

Gauge expected future returns.

• 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.

Assets Liabilities

Equity

Assets Liabilities

Equity

+/- Net Income+/- Valuation Changes+ Capital contributions

Beginning Balance Sheet Ending Balance Sheet

• Example of Balance Sheet entry

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 Equity174.00= 97.00+77.00

(In ₹ Millions)

(In ₹ Millions)

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

EquityShareholders 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 Equity172.00= 95.00+77.00

(In ₹ Millions) (In ₹ Millions)

(In ₹ Millions)

• Exercise

Transaction 1:Received ₹ 0.2 Million Cash ( Revenue) for services.

Transaction 2: Received ₹ 0.18 Million for services provided in past.

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 Equity174.20= 97.00+77.20

(In ₹ Millions)

(In ₹ Millions)

Questions?

Thank You!!