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?

A 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 Charges910

 

Interest Expense

1,000 
Rent Expenses550

 

Depreciations

420 

Tax Expense

620

 

Receivables10,200

 

Payables

 9200
Cash20,000

 

Furniture and Equipment

 

15,000

Loan 

21,000

Insurance

3,080 
Owner Equity 

10,000

 

116,400116,400

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

20,000Loan21,000
Furniture15,000Payables

9,200

Receivables

10,200  
TOTAL ASSETS45,200TOTAL LIABILITIES

30,200

 

 Owner’s Equity 
  Capital

5,000

 

 Add: Owner’s Equity at the beginning10,000
  Less: Drawings

5,900

 

 Add: Net profit after tax5,900
  OWNER EQUITY

15,000

TOTAL

45,200TOTAL

45,200

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

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