There are a number of steps to follow to prepare a balance sheet. The recommended approach to doing so is as follows:
1 Print the trial balance. The trial balance is a standard report in any accounting software package. If you are operating a manual system, then construct the trial balance by transferring the ending balance in every general ledger account to a spreadsheet.
2 Adjust the trial balance. It is usually necessary to adjust the preliminary trial balance to ensure that the balance sheet is in compliance with the relevant accounting framework (such as GAAP or IFRS). We use adjusting entries to modify the trial balance. Each adjusting entry should be thoroughly documented, so that auditors can determine why it was made.
3 Eliminate all revenue and expense accounts. The trial balance is comprised of accounts for revenue, expenses, gains, losses, assets, liabilities, and equity. Eliminate from the trial balance all accounts except those for assets, liabilities, and equity. Incidentally, the eliminated accounts are used to construct the income statement.
4 Aggregate the remaining accounts. The line items in the balance sheet are usually far fewer than the line items in the trial balance, so aggregate the trial balance line items into the ones used in the balance sheet. For example, there may be multiple cash accounts in the trial balance that should be aggregated into a single "cash" balance sheet line item. The typical line items used in the balance sheet are:
Cash
Accounts receivable
Inventory
Fixed assets
Other assets
Accounts payable
Accrued liabilities
Debt
Other liabilities
Common stock
Retained earnings
5 Cross-check the balance sheet. Verify that the total for all assets shown in the balance sheet equals the total for all liability and stockholders' equity accounts.
6 Present in desired balance sheet format. Re-write the resulting balance sheet into the format required for presentation. For example, it may be in comparative format, where the financial position of the business as of multiple dates are listed side-by-side in the report.