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	Accounts Receivable	363,500
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		Prepaid Expenses	8,400
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		Investments	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	Income Taxes Payable	90,000
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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