Balance Sheet is a statement showing the financial position of a business entity on a particular day. It shows the liabilities and assets of the business. Steps to prepare Balance Sheet from Trial Balance All the debit side items related to assets listed in the trial balance shall be posted on the aRead more
Balance Sheet is a statement showing the financial position of a business entity on a particular day. It shows the liabilities and assets of the business.
Steps to prepare Balance Sheet from Trial Balance
All the debit side items related to assets listed in the trial balance shall be posted on the assets side of the balance sheet. All the credit side items related to capital and liabilities listed in the trial balance shall be posted on the liabilities side of the balance sheet.
1. Post the amount of capital on the liabilities side of the balance sheet under the head “capital & reserves”.
2. Then, the net profit or net loss ascertained while preparing the income statement shall be added or reduced respectively from the amount of capital.
3. Now, post all the “non-current liabilities” such as long-term bank loan, long-term debentures issued, etc on the liabilities side of the balance sheet.
4. Then, post the “current liabilities” such as sundry creditors, bills payable, etc. Incorporate necessary adjustments related to outstanding expenses and pre-received income.
5. Moving to the asset side, start with the head “non-current assets”.
6. First, post the tangible assets under the head “non-current assets” such as plant & machinery, land & building, etc. Calculate depreciation/accumulated depreciation on the tangible assets and deduct the same to arrive at the net value.
7. Second, post the intangible assets under the head “non-current assets” such as software, goodwill, etc. Calculate amortization/accumulated amortization on the intangible assets and deduct the same to arrive at the net value.
8. Now, post all the long-term investments acquired such as bonds and debentures under the head “non-current assets”.
9. After posting all the non-current assets, move forward to posting the “current assets” on the asset side of the balance sheet,
10. Post “current assets” such as cash in hand, cash at bank, sundry debtors, bills receivable, etc. Incorporate necessary adjustments related to provision for doubtful debts, prepaid expenses, outstanding income,.
11. Post the amount of closing stock given in the adjustments under the head “current assets”.
12. The final step is totaling both the liability and asset side. Both sides of the balance sheet should be of equal amount.
These steps complete the process of preparation of the balance sheet from the trial balance.
Illustration
A snippet of trial balance and balance sheet has been attached for better understanding.
Prepare Balance Sheet from the above given trial balance. Net Profit for the year ended 31/03/yyyy is 610,000.
Meaning of Provision for Doubtful Debts Almost every business entity has some debtors, of which recovery is doubtful. It may not be realised. For this purpose, provision is created which is known as provision/reserve for doubtful debts. This provision is created on the basis of experiences of the prRead more
Meaning of Provision for Doubtful Debts
Almost every business entity has some debtors, of which recovery is doubtful. It may not be realised. For this purpose, provision is created which is known as provision/reserve for doubtful debts. This provision is created on the basis of experiences of the previous years. It is an anticipated loss therefore provision for doubtful debts is necessary.
Treatment of Provision for Doubtful Debts in Balance Sheet
Sundry Debtors – Bad Debts
Let me help you understand the treatment better with the help of an example using trial balance and balance sheet.
Example
Show treatment of Provision for Doubtful Debts in the Balance Sheet of ABC Ltd.
5% provision for doubtful debts is calculated on 500,000 (5% * 500,000 = 25,000) & deducted from sundry debtors.
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