To construct a balance sheet, list all business transactions, assign items as assets, liabilities, or equity, and then perform a final account reconciliation. Balance sheets represent a statement of financial position at any given point in time and can change after a business transaction.Continue Reading
Balance sheet activity consists of capital purchases, debt assumption and company ownership. All capital purchases must be listed with the respective amounts and dates of purchases. Any company cash should also be considered. Finally, any transactions from business owners related to capital contributions must be on this list.
Capital purchases should be grouped into the asset category on the balance sheet. These purchases include acquisitions of land, machinery, equipment and inventory. Any debt assumed by the company should be categorized into the liabilities section of the balance sheet. Debt can be either short-term or long-term in nature. Finally, any ownership within the company should be listed in the equity section of the balance sheet.
Assets are financed with either debt or equity. A successful balance sheet reconciles between assets, liabilities and equity. Each capital purchase should be analyzed to determine if it was financed with either cash, debt or equity. This itemized approach ensures that the balance sheet is fully reconciled. If the balance sheet does not reconcile, it is necessary to analyze all business transactions to determine where the variance lies.