A balance sheet is a financial statement prepared by all types of organizations. It is created on a specific date, usually the last day of an accounting period, and follows the standard accounting equation: Assets = Liabilities + Owner’s Equity. An accounting worker creates this statement by transferring the amounts of all of these types of accounts from the general ledger to a blank statement form. If the balance sheet is incorrect, the creator of it must backtrack in order to find out where the mistake came from.
Things You'll Need
- General ledger
- Balance sheet
Gather the general ledger. All companies who use accounting have a book that contains all the transactions that occur. This is called a general ledger. It keeps track of all transactions and balances by posting entries to various accounts when transactions occur. This book has all accounts used by an organization and contains five main categories: assets, liabilities, equities, revenues and expenses.
Review the balance sheet. A balance sheet lists all assets of a company on the left-hand side. The total of the assets is placed on the bottom of this column. On the right-hand side, the balance sheet contains a listing of all liabilities and all equities. The total amounts of both of these categories are added up and placed at the bottom of this column. This amount should equal the total amount of assets from the bottom left-hand side. If these two amounts are not the same, the balance sheet is incorrect and out of balance.
Review the assets. Looking through the general ledger, study each asset and its amount. Verify that the amount listed in the general ledger is the amount placed on the statement. If an amount was transferred to the statement incorrectly, the balance sheet will be incorrect. If you find any discrepancies, change the amounts listed on the balance sheet.
Compare the liabilities. Look through each liability and amount in the general ledger. Compare each amount to the amount placed on the balance sheet. If an amount was transferred over incorrectly, change the amount on the balance sheet.
Study the equities. Finally, compare the equity amounts from the general ledger to the balance sheet. Correct any amounts that are incorrect.
Add up columns. Re-add each column and verify that the total assets are equal to the total amount of liabilities and equities.