Frequently Asked Questions(FAQ)

What if the Balance Sheet Does Not Balance?
If you’ve found that the balance sheet doesn’t balance, there’s likely a problem with some of the accounting data you’ve relied on. Double-check that all of your entries are, in fact, correct and accurate. You may have omitted or duplicated assets, liabilities, or equity, or miscalculated your totals. Remember, the entire purpose of the balance sheet is to ensure that everything balances and to delineate between assets, liabilities, and equity.
How Can I Make a Balance Sheet in Excel?
Excel is one of the easiest ways to prepare a balance sheet and comes with many in-built functions. But the balance sheet is straightforward anyway, not requiring a great deal of sophistication. You would use a single sheet (not different sheets), and subtotal the current assets, and next subtotal the liabilities + shareholder/owners equity. Just bold highlight the two totals, as they are what people will be looking for.
What Is the Purpose of General Ledger in Relationship to the Balance Sheet?
A general ledger is used to record all company transactions. In large companies, it can get extremely complicated and will require the creation of many sub-ledger accounts to keep track. The balance is derived, directly, or indirectly, from the general ledger. The general ledger is also used to create the income statement for a business. The trial balance verifies that the general ledger is correct, and if it is the balance sheet will also be accurate. All of this works through the double-entry accounting system of checks and balances.
What Is the Significance of the Trial Balance in Relationship to the Balance Sheet?
To really understand the balance sheet, you need to understand the trial balance and the associated general ledger accounts. The balance sheet is created primarily from the trial balance, which is created from the general ledger accounts. If there are errors in your trial balance, then there will be errors in your balance sheet, so it is good to troubleshoot problems closer to the source. However, a trial balance cannot detect bookkeeping errors that are not simple mathematical mistakes. If equal debits and credits are entered into the wrong accounts, a transaction is not recorded or offsetting errors are made with debit and credit at the same time, a trial balance would still show a perfect balance between total debits and credits.
What Is the Difference Between Tangible and Intangible Assets on a Balance Sheet?

Tangible assets will include things that can easily be quantified. They are usually (though not always) physical, such as land, inventory, equipment, cash, investments, etc. Intangible assets include patents, copyright, and even goodwill if it can be demonstrated. Tangible assets play a more prominent role, though artistic and digital industries are largely built on intangible assets. Both tangible and intangible assets will be recorded on a company balance sheet, added together to get a subtotal of assets. Tangible assets are divided into current and fixed assets. Intangible assets are far more problematic from an accounting perspective, as they are harder to put a price on.

How Is Cash Calculated on a Balance Sheet?
For the purposes of a balance sheet calculation, cash includes currency, bank accounts, and undeposited checks. Cash is reported under the current assets section. It is useful to have cash at hand because it looks better and can also help in the event of a liquidity crisis. Both investors and lenders will want to see how much cash a business typically keeps at hand. It indicates how well a business can meet obligations and liabilities. The calculation is quite simple. Simply add all non-cash assets together and take this figure away from the total assets. What you will be left with is the total cash available.
What Are the Limitations of the Balance Sheet?
The balance sheet is essential for investors, lenders, owners, and anybody looking to understand the financial strength of a business at a given point in time. However, it does have a number of limitations. The main one is that it is static. The business might have been excellent at a particular point in time, but may have moved assets since that point. It is possible for a business to move things around so that the balance sheet appears good, but is not as it seems. This is the primary limitation – managers can game the balance sheet, so be sure to pay attention to the footnotes to determine what system of accounting is being used.
Aside From the Balance Sheet, What Are the Other Important Financial Documents?
The income statement, trial balance, general ledger, and balance sheet are the 4 primary financial statements you will want to investigate in order to understand accounting in detail. All are interlinked with one another. If you can understand these, you will have a strong basis of accounting from a business perspective.

About the Author

Daniel Lewis

Daniel Lewis

MBA Accredited Investment Professional

Daniel Lewis is an MBA accredited investment professional who wants to assist small business owners to gain access to finance.

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