How to Prepare a Balance Sheet for Smarter Financial Decisions

Key takeaways

A balance sheet is a financial statement of a company’s assets, liabilities, and shareholders’ equity. Here are some important facts to know:

• In a 2024 Intuit QuickBooks survey, 40 percent of respondents stated that accounting software would significantly reduce the time required to prepare and analyze financial statements like balance sheets [1].

• Preparing a balance sheet involves deciding on your reporting period, listing your total assets and liabilities, calculating your shareholders’ equity, and checking if total assets equal total liabilities plus equity.

• You can leverage accounting software like QuickBooks and Xero to streamline and automate your balance sheet creation process.

Explore how to prepare a balance sheet for your business, as well as the different components of a balance sheet, the uses of balance sheets, and tools and resources to help you get started. If you’re ready to learn more, consider enrolling in the Intuit Academy Bookkeeping: Balance Books Like a Boss Professional Certificate. You’ll have the opportunity to learn about fundamental accounting concepts and gain experience with financial statement analysis in as little as two months.

What is a balance sheet?

A balance sheet, also referred to as a statement of financial position, displays what assets a company currently owns, what the company’s liabilities or financial dues are, and the equity that shareholders have invested in the company, collectively summarizing the company’s financial health at a specific period. A balance sheet is an important financial statement for a company because it allows investors, analysts, and other stakeholders to assess a company’s performance, obtain important insights for making financial decisions, and evaluate the company’s current and future profitability.

What are the four parts of a balance sheet?

A balance sheet contains the following four components:

• Assets: Any goods or resources that the company owns that it can convert to cash 

• Liabilities: Any money that the company owes external parties, like debtors, suppliers, or employees

• Shareholders’ equity: The money owed to the owners or shareholders of the company

• Notes: Any non-quantifiable data or assumptions used during balance sheet preparation

How to prepare a balance sheet step by step

A balance sheet includes two sides: the company’s assets are on the left side, while its liabilities and shareholder equity are on the right side. Both sides must balance, meaning Total assets = Total liabilities + Shareholder equity.

Assets/liabilities in a balance sheet include both short-term or current assets/liabilities and long-term or non-current assets/liabilities. You must first list current or more liquid items, like inventory and accounts payable, before you list non-current or less liquid items, like property and loans.

Recently, businesses have begun to adopt accounting automation software and artificial intelligence-based tools to streamline their financial reporting process. In fact, 29 percent of respondents in the 2024 Intuit QuickBooks Accountant Technology Survey said that they used AI for financial statement preparation and analysis in 2023, and 40 percent believed that accounting technology can significantly help speed up financial statement preparation [1]. However, even if you use software for the entire balance sheet preparation process, knowing how to prepare a balance sheet will help you quickly identify and resolve errors and gain a robust understanding of your business’s financial structure.

The following steps outline the basic process of preparing a balance sheet.

1. Determine your reporting period.

You must first decide on the reporting period that your balance sheet covers and the reporting date, which is usually the last date of your accounting period. For example, companies that review balance sheets on a quarterly basis might have March 31 as the reporting date for the first quarter of the year, while companies that produce balance sheets yearly will have a reporting date of December 31. 

2. Open your sheet, and create a heading. 

Whether you’re using accounting software or a simple spreadsheet tool like Microsoft Excel, you must first specify a heading for your sheet, which will include your business’s name and reporting period.

3. List your total assets.

Identify all your current and non-current assets, and list them as individual line items in separate categories. Add all of your current assets together, and create a subtotal in the current assets section, which might include assets like cash, inventory, and accounts receivable. Do the same for non-current assets, which might include property, equipment, and intangible assets, in their respective section. Once you have the two subtotals, add them together, and enter the total at the bottom of the assets section.

4. List your total liabilities.

Similarly, organize your liabilities into current liabilities, like accounts payable and accrued expenses, and non-current liabilities, like long-term debt or lease-related payments. Add all of your current liabilities together to get a subtotal, and repeat the process for your long-term liabilities. Then, add the two subtotals together to obtain the total liability.

5. Evaluate shareholders’ equity. 

Shareholders’ equity may involve stocks and shares for publicly owned companies or the capital invested by a single owner for privately held companies. List the stocks by type, including public, private, and treasury stocks. List your retained earnings, which are your company’s total earnings minus dividends. Calculating shareholders’ equity will then involve the following formula: Shareholders’ equity = Share capital + Retained earnings – Treasury stock, where share capital denotes the amount of money the company raises by selling stocks.

6. Balance the sheet.

Add total liabilities and total equity together, and then compare this value against the total assets using the formula Assets = Liabilities + Shareholders’ equity. This means that you must ensure your total assets are equal to the total value of liabilities and equity. If both sides don’t match, check whether you entered all of your data correctly, whether you missed any data, or whether you calculated shareholders’ equity using the correct formula.

Types of balance sheets

You can categorize balance sheets into several types based on their format and their purpose, such as internal or external assessment or financial predictions. Knowing the differences between the types of balance sheets can help you effectively organize your financial data. 

• Comparative: Displays financial information for several periods in a single sheet, often to showcase trends or performance over time

• Condensed: Provides a summarized version of finances instead of breaking it down into categories like cash or accounts payable

• Common-size: Denotes all asset, liability, and equity items as a percentage of the total assets

• Pro forma: A hypothetical balance sheet based on future projections, mainly used for financial forecasting

• Vertical: Contains only one column, with assets at the top and liabilities and equity at the bottom

• Horizontal: Contains two columns, with assets on the left side and liabilities and equity on the right side

Uses of balance sheets

A balance sheet is an important document for understanding the financial status of a company. You can use several metrics with balance sheets to showcase your business’s complete financial health:

• Current ratio: Current assets divided by current liabilities

• Quick ratio: The value of current assets, after deducting inventory and prepaid expenses, divided by current liabilities

• Debt-to-equity ratio: Total debt divided by shareholders’ equity

• Asset turnover ratio: Value of net income divided by the average of fixed assets

• Return on equity: Value of net income divided by shareholders’ equity

Lenders, investors, and analysts can use these metrics along with balance sheets to:

• Understand how efficiently a company utilizes its assets by looking at the asset turnover ratio.

• Measure the company’s liquidity using quick ratios and current ratios to assess whether it can pay off short-term obligations.

• Determine whether a company is a profitable investment using return on equity and the debt-to-equity ratio.

• Assess whether a company is eligible for loans or credit using total liquid assets and the assets-to-liabilities ratio.

• Identify financial trends by tracking increases in assets, liabilities, or retained earnings to inform decision-making.

• Comply with regulatory standards like the International Financial Reporting Standards (IFRS).

Who uses balance sheets?

Company owners, managers, and employees in charge of finances might use balance sheets to accurately gauge a company’s financial position. Some of the jobs that may require working with balance sheets and their total median annual US salaries are as follows: 

• Managerial accountants: $90,000 [2]

• Business managers: $114,000 [3]

• Equity analyst: $162,000 [4]

• Debt analyst: $83,000 [5]

• Accountant: $93,000 [6]

All salary information represents the median total pay from Glassdoor as of October 2025. These figures include base salary and additional pay, which may represent profit-sharing, commissions, bonuses, or other compensation.

Read more: What Does an Accountant Do? And How to Become One

How to prepare an income statement from a balance sheet

You can’t prepare an income statement from a balance sheet because you need information from the income statement to calculate your balance sheet. You’ll first need to prepare an income statement that outlines your total revenue, expenses, profits, and losses over a specific period. From the income statement, you’ll calculate your retained earnings in that period after deducting any dividends, and then use both the income statement and the retained earnings to inform your balance sheet.

Tools and templates to make balance sheet preparation easier

Although manually preparing a balance sheet can be a time-consuming and error-prone process, accounting software and tools can simplify the balance sheet preparation process, maintain accuracy in reporting, automate data entry, and streamline your financial reporting. If you’re a small business owner who’s looking for a low-cost option, you can opt for platforms like Wave or Zoho Books that allow you to start for free. Spreadsheet software like Microsoft Excel and Google Sheets can also be a great place to start, although it will require you to enter the data manually. If you’re willing to invest in an advanced accounting software that can automate multiple aspects of balance sheet preparation, you can consider options like QuickBooks, Xero, Workiva, and Sage Intacct.

Using an editable balance sheet template can also help you save time and maintain accuracy in your financial statements. You’ll find free balance sheet templates on websites like Corporate Finance Institute, Xero, and Zoho Books.

Resources to help you begin preparing balance sheets

You’ll find several online guides available to help you learn how to prepare balance sheets. Educational institutions like Harvard Business School offer detailed instructional guides to help you learn more about the balance sheet preparation process. Taking an online course, like the Tally Bookkeeper Professional Certificate, can also be a great way of exploring financial reporting concepts and accounting software. You can also look at real-world balance sheets to get a more practical understanding of the structure of balance sheets. You’ll find official balance sheet data from the US Bureau of the Fiscal Service and the World Bank that are free to access. You can also consider learning about balance sheets from a book like “Financial Statements: A Step-by-Step Guide to Understanding and Creating Financial Reports” by Thomas Ittelson for a more thorough and theoretical approach.

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