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How to Prepare Balance Sheet from Trial Balance?

The financial statements balance sheet and income statement are prepared using the trial balance and additional information. The accounting transaction is first posted as journal entries, then posted to the general ledger, and then flows into the trial balance.

What is a trial balance?

trial balance is a statement that lists all the general ledger accounts and sums up their balances. It lists all the debit and credit balances. The sum of all the debit balances must equal the credit balances. If it doesn’t tally, then there are some errors in trial balances. The preparation of a trial balance helps in easy checking and locating any errors in the overall accounts.

What is the balance sheet?

The balance sheet is a financial statement that shows the financial position of the company on a particular date. It helps us to know what a company owns and what a company owes. It shows the business’s net assets or worth (difference between assets and liabilities).

How to prepare a Balance Sheet from Trial Balance?

In order to prepare a balance sheet, we need to collect the information—assets, liabilities, owner equity, and other information—from the trial balance.

Let’s understand with an example:

Following is the trial balance of XYZ company on 31st December 2022

TRIAL BALANCE FOR XYZ at 31st December 2022

DEBIT in $ CREDIT in $

Capital account

5,000

Drawing

5,900

 

Purchases

73,000

 
Sales  

56,000

Commissions

720  
Bank Charges 910

Interest Expense

1,000  
Rent Expenses 550

Depreciations

420  

Tax Expense

620

Receivables 10,200

Payables

  9200
Cash 20,000

Furniture and Equipment

 

15,000

Loan  

21,000

Insurance

3,080  
Owner Equity  

10,000

116,400 116,400

Now let’s look at the following figures:

Assets

Liabilities

  • Loans
  • Payables

Owner’s Equity

  • Capital
  • Owner’s Equity
  • Drawings

The above figures will flow into the balance sheet. The basic equation of the balance sheet is:

Assets – liabilities = Owner’s Equity (Net Assets)

Using the figures from the trial balance, we can prepare the balance sheet below. Note that there are two methods of preparing a balance sheet: the “T” format and the list format. Either of the two can be used, the only difference is the way of representing the information.

BALANCE SHEET FOR XYZ AS ON 31 DECEMBER 2022

ASSETS

AMT IN $ LIABILITIES

AMT IN $

Cash

20,000 Loan 21,000
Furniture 15,000 Payables

9,200

Receivables

10,200    
TOTAL ASSETS 45,200 TOTAL LIABILITIES

30,200

  Owner’s Equity  
    Capital

5,000

 

  Add: Owner’s Equity at the beginning 10,000
    Less: Drawings

5,900

 

  Add: Net profit after tax 5,900
    OWNER EQUITY

15,000

TOTAL

45,200 TOTAL

45,200

Note: The net profit is calculated from the profit and loss account. Here, net profit is assumed.

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