How to Make a Balance Sheet Philippines (with example)

How to Make a Balance Sheet Philippines (with example):

How does one make a Balance Sheet that’s suitable for a business in the Philippines? That is probably one question that business owners and accounting students need to face. But even if you’re just a regular “Juan” who insists on getting your finances straight, preparing a balance sheet is a great start.

Back in college, creating balance sheets (or rather, the complete set of financial statements) was taught in our Accounting 1 & 2 subjects. Now, if you’ve never had to enroll in these two subjects but are currently in need to do so for your thriving business, this quick guide might help!

How to Make a Balance Sheet Philippines (with example)

1. What is a Balance Sheet?

One of the five main financial statements used by accountants and owners of corporate houses is the balance sheet. It is generally referred to as the Financial Status Statement or Statement of Financial Position. Basically, it reflects the total assets of the company, and also, the means provided by the asset unit, which is either by debt or equity. The record is a snapshot of the state of the finances of a corporation (what it owns and owes) as of the date of publication.

2. Why is a Balance Sheet important?

Investors tend to look for growth, value, dividends, quality, liquidity or companies with sustainable competitive advantages. One strategy that these investors use in choosing a company is to look at the latter’s balance sheet. This is because the financial position of the entity affects everything it does and is able to achieve.

Imagine. A company with liquidity, low debts, and sufficient working capital has a higher probability of being successful.

It can fund future needs, such as capital investments, to grow the company or overcome unexpected challenges.

It also affects whether and how much of the cash flows can be returned to shareholders in dividends or stock buybacks

In a bank’s perspective (since I am a former bank employee), balance sheets are important because these documents let banks know if your business qualifies for additional credit or loans.
Balance sheets will help your potential investors better understand where their funding will go and what they can expect to receive from your company in the future.

3. Formula Used for a Balance Sheet

The record adheres to the following accounting equation. Remember to jot this down:

Assets = Liabilities + Shareholders’ Equity

This formula is intuitive: a corporation should borrow money (taking on liabilities) or take it from investors (issuing shareholders’ equity) for all the things it holds (assets) and for all the items it owns.

4. Elements of a Balance Sheet

Assets – Product and assets owned by the corporation. Accounts are classified from top to bottom within the assets category in order of their liquidity, that is, the ease with which they can be transformed into cash.

They are categorized into current assets that can be converted to cash in one year or less, and non-current or long-term assets that cannot be converted to cash in a year or less.

Liabilities – Corporation debts. Current liabilities are those that are due and are listed in order of their due date within one year. Non-current liabilities are due after one year at any point.

Equity – Contribution and past earnings of business owners. It is often referred to as “net assets,” as it is equal to a corporation’s total assets minus its liabilities (the debt it owes to nonshareholders).

Sample Balance Sheet of a Sole Proprietorship Philippines

Step 1: Gather the needed information

Any product showing updated account balances is mostly used. However, the modified trial balance will be the foremost relevant method for this.

Step 2: Prepare the heading

The business name is used in the first paragraph.
The second line indicates the report title. We can use either “Balance Sheet” or “Statement of Financial Position”.
The third line shows the date of the report.

Step 3: Report all company assets

Take all funds from the trial balance and list them on the balance sheet.
Current assets are independently reported from non-current assets
Calculate the total current assets, the total non-current assets, and the total assets.
Double-rule the number of total assets

Step 4: Report all liabilities

Present “liabilities and capital”.
Begin by presenting existing liabilities, followed by non-current liabilities.
When you use properties, take the totals of each as well as the amount of total liabilities.

Step 5: Report the ending balance of capital

The final capital balance can be taken from the Statement of Changes in Equity, which is where the beginning and ending balances is shown in a company’s equity during a reporting period
Take the total number of “liabilities and capital” after adding capital
That total amount must be double-ruled.

6. Important Notes in preparing a Balance Sheet:

Total assets should be as large as the combined total of all liabilities and capital. If they’re not, then in the process, one thing should have gone wrong.

The illustrative example we have above is for a sole proprietorship company. Many capital accounts need to be presented if you are making a balance sheet for a partnership and corporation.

The capital component of a corporation is considered to be the equity of stockholders and is generated from capital stock, reserves, and retained earnings.

7. Reminders for Creating a Balance Sheet

Before creating your balance sheet, execute a trial balance
Regularly review balance sheet transactions
Pinpoint any concerns ASAP
Keep the financial statements organized.

Whatever record is involved, the more organized you are, the better. Your company’s biggest task is to be as proactive as possible and to maintain accurate financial records for reference. Errors are inevitable. However, if you have an onsite concept to track them back, you will be able to prevent larger record issues in the future.

Related Posts:

How to Make a Balance Sheet Philippines (with example)