Preparing Balance Sheets

All accountants need to master the preparation of balance sheets as an accounting practice because this process will certainly need to be carried out frequently. Balance sheets can be considered one of the major financial statements created after all. If you have any questions about how you should handle your accounts, do not hesitate to work with an accounting firm in Johor Bahru. Below is what you must learn about the process if you are starting with basic accounting practice:

Balance sheets show a company’s financial (Also see Introduction to Financial Risk Management) position at a specified date. Balance sheet details enable creditors to track what the company presently owns and what still owes to other parties. This is commonly the information bankers need to evaluate if the company get approved for more loans or credit. As basic accounting practice, focus on three essential aspects in the general formula: Assets, Liabilities, and the Owners’ Equity. A company’s assets must equal the sum of its liabilities and Owners’ Equity.

Assets

Assets are the resources the company obtains through the procedure of transactions. These resources usually own future economic value, enabling accountants to determine and also express through cash. Assets can also consist of expenses paid in advance, like prepaid advertising services. Asset accounts normally contain debit balances, while contra assets contain credit balances.

Liabilities

Liabilities also known as company obligations; these are amounts owed to the business’s creditors for transactions. Liabilities are also normally treated as one of the contributing resources of a company’s assets. It could also be the amount received in advance for future services or products. Liability accounts normally contain credit balances, while contra liabilities contain debit balances.

Owner’s Equity

The Owner’s Equity is used when describing the book value of the company. Relying on the company’s nature, various terms apply – Owner’s Equity is usually utilised for sole proprietorships, while companies with numerous stockholders make use of Stockholder’s Equity. Both accounts need to contain credit balances generally.

Owner’s equity increases when revenues are earned and gained. Conversely, expenses and losses cause it to decrease. For companies increasing assets and performing services, the equity increases when the Profit and Loss are closed at the end of the year.

These are the basics of accounting (Also see Types of Accounting Errors and Ways to Avoid Them) to remember when preparing balance sheets. Ensure to take notice of these details when preparing the balance (Also see Accounting – Closing Balance) sheets and also make use of the notes to deal with any additional information that helps to understand better and analyse the financial statement.