In every business organization, financial statements are prepared at the end of the financial period in order to determine the performance of the company. It is very useful for the organizations to make important strategic decisions and to determine the trend analysis for the future periods. This article analyzes the ways in which the balance is prepared by the accountants at the end of the financial year.
Balance Sheet Preparation
The balance sheet can be considered as one of the most important documents which is prepared by the organization in order to summarize the financial position of the company. It is usually prepared at the end of the financial period considering all the transactions that took place within the period.
In order to balance a balance sheet there are few steps that needed to be followed as mentioned below:
• Prepare the trial balance at the end of the period in order to certify that all the debit and credit balances tally with each other.
• Then it would be easy if the accounts can be classified with the items that can be included under the sub-headings of assets, liabilities and equity in the balance sheet as indicated in the below table.
• The next step is to transfer the subtotals under the balance sheet classification in order to finalize the balance sheet.
• According to the following accounting equation, the balance sheet can be balanced at the end of the financial period.
Total assets = Total liabilities + Equity
Mentioned below is a framework of a balance sheet.
At present, with the use of various accounting softwares, financial statement preparations have become an easier task as all the transactions are tracked into the accounting systems at the time of each has been made. With the use of these software, they can easily make the comparisons of the previous year’s performances and present it to the senior management to make important decisions either to make improvements or cost reductions on behalf of the organization.
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