How to prepare balance sheet

4.3. Step 3: Group trial balance accounts by classification

There are more trial balance accounts in Illustration 5 than there are balance sheet classifications (groups) in Illustration 4. That is because some classifications (groups) may include multiple trial balance accounts. For example, Cash and Cash Equivalents on the balance sheet template will include the following trial balance accounts since they have the same nature: Petty Cash, Chase Checking, PayPal Checking, Savings, and Money Market. Therefore, the next step is to group all accounts on the trial balance by their respective balance sheet classifications.

We have added another column to the trial balance where we entered the balance sheet classification for the accounts.Refer to Illustration 6 below.

4.4. Step 4: Subtotal account balances by classification

The following step is to subtotal the balances in the accounts for each classification. Note that when subtotals are prepared, all asset balances are calculated as Debit Credit, while all liability and equity balances are calculated as Credit Debit. For example, the subtotal for the balance sheet classification "Accounts Receivable" is equal to the debit amount in the account 1300, Accounts Receivable, less the credit balance in the account 1350, Allowance for Doubtful Accounts (that is, $389,000 - $25,500 = $363,500). Even though the calculations seem to be complicated, if you use spreadsheet software, it is pretty easy:

Illustration 6: Trial balance with subtotals for balance sheet classifications (groups)

Your Company Name
Trial Balance
December 31, 20X0

Acct #

Account Name

Debit

Credit

Balance Sheet
Classification

Subtotal

1000

Petty Cash

$ 500

 

Cash & Cash
Equivalents

391,000

1010

Chase Checking

42,000

 

1020

PayPal Checking

23,500

 

1030

Savings

300,000

 

1040

Money Market

25,000

 

1200

Marketable Securities

0

 

Marketable
Securities

0

1300

Accounts Receivable

389,000

 

Accounts
Receivable

363,500

1350

Allowance for Doubtful Accts

 

25,500

1400

Raw Materials

87,000

 

Inventories

289,000

1410

Work-in-process

12,000

 

1420

Finished Goods

132,000

 

1430

Spare Parts

58,000

 

1500

Prepaid Insurance

5,400

 

Prepaid
Expenses

8,400

1510

Prepaid Rent

3,000

 

1600

Land

570,000

 

Fixed
Asset

828,000

1610

Buildings

430,000

 

1620

Leasehold Improvements

100,000

 

1630

Office Equipment

44,000

 

1650

A/D-Buildings

 

240,000

1660

A/D-Leasehold Improvements

 

51,000

1670

A/D-Office Equipment

 

25,000

1700

Patens

170,000

 

Intangible
Asset

140,000

1710

Trademark

60,000

 

1750

Accum Amort-Parents

 

90,000

1800

Investments in Debt Secs

0

 

Investments

75,000

1810

Investments in Equity Secs

75,000

 

1900

Cash Surrender Value Life Insr

54,000

 

Other Non-current
Assets

54,000

2000

Accounts Payable

 

285,000

Accounts
Payable

285,000

2100

Accrued Payroll

 

205,000

Accrued
Expenses

570,000

2110

Accrued Property Taxes

 

42,000

2120

Accrued Vacation

 

323,000

2200

Short-term Bank Loan

 

245,000

Short-term Loans

245,000

2300

Current Portion of Line of Credit

 

100,000

Current Portion
of Long-term Debt

100,000

2400

State Income Tax Payable

 

30,000

Income Taxes
Payable

90,000

2410

Federal Income Tax Payable

 

60,000

2500

Line of Credit (Revolver)

 

53,000

Line of Credit

53,000

2510

Term Loan

 

250,000

Term Loan

250,000

3000

Capital

 

50,000

Capital

50,000

3010

Current Year Earnings

 

159,000

Current Year
Earnings

159,000

3020

Retained Earnings

 

346,900

Retained
Earnings

346,900

 

Total

$ 2,580,400

$ 2,580,400

   
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