subject: Steps to Making an Ending Balence Sheet [print this page] When we have a beginning balance in accounting we have to take many different steps to find what the ending balance for the time period necessary is. In order to find the ending balance we have to use an income statement, a statement of retained earnings, and a balance sheet. Before each task is completed a trial balance sheet should be already done so that it can help you later in the process. First I want to go through the steps to creating an income statement to find the net income for the desired period of time. Next I want to use the income statement to get my balance for the by plugging it into my statement of retained earnings. Last I want to use my statement of retained earnings ending balance in my balance sheet to get the final value of my assets, liabilities, and equity.
The income statement can be labeled beginning with the first line stating the business, the next line stating "income statement", and the third line stating the time period where the balance is trying to be obtained. An income statement is simply revenues minus expenses. The revenues and expenses can be found on the trial balance sheet. Revenue is anything earned for that period of time. For example, money earned for work, products, or services would all be considered revenue. Expenses are any money that was spent such as money for rent, money to pay employees their salary, and utilities. The revenues and expenses can be added up separately. Once this step is completed the expenses can now be subtracted from the revenue. After the expenses are subtracted from the revenues the final number found is the net income for the time period. The net income will now be used in the statement of retained earningsand the equity portion of the balance sheet.
The statement of retained earnings can be labeled with the business on the first line, "statement of retained earnings" on the second line, and the period of time on the last line. The statement of retained earnings is simply used to find thestockholdersequitybalancefor theperiod of time ended. The balance is found by taking the balance at the beginning of the time period, adding the net income for the time period, and then subtracting the dividends for the time period. The net income for the month is takenfrom the income statement that was previously completed. The dividends are found on the trial balance sheet that was completed for the year. The ending amount is now the new balance for the end of that time period. Thenet income and dividends will be used later on the balance sheet.
The final step is to make sure the assets equal liabilities and owners equity by using a balance sheet. The balance sheet can be labeled as the business on the first line, "balance sheet" on the second line, and the date on the third line which is similar to the sheets previously completed. In order to find this information it is necessary to add up the assets, liabilities, and owners equity separately. Each amount is found in the trial balance. The assets can be cash, accounts receivable, notes receivable, prepaid accounts, supplies, equipment, buildings, and land. Any of these found in the trail balance sheet are considered assets and could be added together. The liabilities include accounts payable, notes payable, accrued liabilities, and unearned revenue. Any of these that are found in the trial balance can be added under the liabilities column. Owner's equity includes retained earnings, common stockand dividends. The value for retained earnings can be found in the statement of retained earnings final balance. The rest of the categories can be taken out of the trial balance sheet along with assets and liabilities. Next, add the total liabilities and owners equity together. The final balance should match the total assets being that assets always equals liabilities plus owners equity. If the balance for assets and liabilities plus owners equity does not match up the process of completing each sheet needs to be double checked to find the mistake. The mistake can simply be miscalculating or taking the wrong number from the trial balance sheet.
The balance at the end of assets and total liabilities plus owner's equity is now the final balance for that period of time. This process is repeated continuously whether it is for the balance for the end of the month, quarteror year. Each sheet must be completed in the order that it has been written because each sheet relies on the information previously retained.
