The BALANCE SHEET for BEGINNERS (Full Example)

Welcome back to accounting stuff I'm James and today i'll show you how to make a Balance Sheet   the balance sheet is one of the three main financial statements the other two called the income statement which we did in the last video and the cash flow statement which we'll cover next time a balance sheet or a statement of financial position is a financial report that gives us a snapshot of a business's assets, liabilities and equity at a single point in time now if you've watched my videos before  then you've probably heard this one   the stuff that a business owns is equal to  the stuff that a business owes in other words a business owns assets and it owes liabilities to third parties the difference between the two is called equity which is what the business owes back to its owners and so we have the accounting equation assets are equal to liabilities plus equity when we take a snapshot of this accounting equation at a single point in time we're looking at a balance sheet we'll call this one the basic balance sheet and as its name suggests it's got to balance that means that total assets must always equal total liabilities and equity a detailed balance sheet would look something like this we expand out assets into current and non-current  current assets are short-term assets things like receivables and prepaid expenses on the other hand non-current assets are long-term assets   there are two main types the ones that you can touch and the ones that you can't touch   we do the same thing with liabilities current liabilities are short-term liabilities   payables, accrued expenses and deferred revenue  and non-current liabilities long-term liabilities   stuff like long-term loans equity on the other hand is a different kettle of fish   first we have capital contributions which is the  money invested into the business by its owners for a company with shareholders we might call this common stock and then we have the businesses retained earnings which are its accumulated profits held for future use i do have a balance sheet cheat sheet which summarizes all of this the link's in the description anyways How do you make a basic Balance Sheet? first you need another accounting report called a trial balance this shows us the closing balances for every general ledger account at a point in time here's a trial balance for a dating app called Tumble it was run at the end of Tumble's financial year December 31st and it's an adjusted trial balance because  all adjusting entries have already been posted we can see all of Tumble's accounts and balances  debits are on the left and credits are on the right at the bottom we can see that the debits  total to $87,700,000 which matches the total credits exactly this means that Tumble's trial balance is in balance which is very important because if the trial balance is in balance then the balance sheet also has to balance i don't think i've ever said balance so much in my life accounts in a trial balance are usually   arranged in a pattern above this line we  have the stuff that Tumble owns its assets   and below the line we have the stuff that  Tumble owes its liabilities and equity we also have its revenue and expense accounts which  we used last time to make the income statement   by the way if you're finding these videos useful  and you'd like to support the channel then you   can click on the join button below thanks to all my channel members who've done that already you guys are absolute legends and i really appreciate it thank you! So how do we make a Balance Sheet? There's two ways to do this the right way and the wrong way and i'll show you both We'll start with the wrong way because this is a really easy mistake to make and it goes something like this we take all of tumble's assets, liabilities and equity accounts and we pop them in their sections of the balance sheet in theory it's the right thing to do but check this out total assets add up to $36,350,000 and total liabilities plus equity add up to $25,650,000 that's the difference of $10,700,000  so this balance sheet doesn't balance what went wrong? We forgot to include Tumble's revenue and expenses these are part of Tumble's retained earnings it's profits held for future use which also sit in the equity section of its balance sheet when we include them total liabilities plus equity also add up to $36,350,000 so Tumble's basic balance sheet is in balance remember the balance sheet is a snapshot of a businesses assets, liabilities and equity at a single point in time on the left side we can see what the business owns and on the right side we can see what it owes to third parties and its owners How do we make a detailed Balance Sheet? we follow the same process but first we need to divide Tumble's assets and liabilities into current and non-current cash, accounts receivable, other receivables and prepaid expenses are all current assets property, plant and equipment and intangibles are non-current assets  accounts payable, taxes payable, accrued expenses and deferred revenue are all current liabilities  and long-term loans is a non-current liability in the equity section common stock is a type of capital contribution and everything below that is retained earnings these are Tumble's profits held for future use their opening retained earnings at the start of the year less dividends plus Tumble's net profit in the current year and that's it we can pick up all these numbers  and put them in our detailed balance sheet   so we've got current assets $31,050,000 and $5.3m in non-current assets   current liabilities of $14.4m and  non-current liabilities of $1.2m dollars   then we have $1,050,000 in common stock which is a type of capital contribution and finally $19,700,000 in retained earnings   or profits held for future use total assets are equal to total liabilities plus equity   so this balance sheet is in balance thanks for watching remember to like and subscribe if you found this useful in the next video we'll cover the cash flow statement see you then

Channel: Accounting Stuff

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Keywords: balance sheet, statement of financial position, sofp, sfp, balance sheet statement, how to make a balance sheet, how to prepare a balance sheet, accounting, accounting basics, accounting stuff, how to make financial statements, balance sheet tutorial, accounting tutorial, tutorial, balance sheet accounting, balance, sheet, financial, position, financial statement, balance sheet explained

Id: CMv1zlZhb4Q

Length: 6min 58sec (418 seconds)

Published: Tue Mar 30 2021