Question
Asked Sep 25, 2019
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How do I make a balance sheet?

 

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Expert Answer

Step 1

Balance sheet: This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and stockholders (stockholders’ equity) over those resources. The resources of the company are assets which include money contributed by stockholders and creditors. Hence, the main elements of the balance sheet are assets, liabilities, and stockholders’ equity.

Step 2

Balance sheet equation or Accounting equation: Accounting equation is a concept expressed in the form of equation, which creates a relation between resources or assets of a company and claims of resources to creditors and owners. This is also referred to as balance sheet equation. Fundamental accounting equation is expressed as shown below:

 

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Assets Liabilities+Stockholders' Equity

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Step 3

Components of accounting equation:

  • Assets: These are the resources owned and controlled by business and used to produce benefits for the company. Assets are classified on the balance sheet as current assets (cash, receivables, short-term investments, inventory, and supplies), long-term investments, property, plant, and equipment (fixed assets like land, furniture, buildings) , and intangible assets (goodwill, trademarks, patents, and franchises). While preparing assets section, follow the order of liquidity. Start with current assets the most liquid assets, followed by property, plant, and equipment. Current assets also should be reported in the order of liquidity. Deduct the accumulated depreciation from the equipment (historical cost) value to get the ending book value of equipment on the reported date.

 

  • Liabilities: The claims creditors have over assets or resou...

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