How to make a balance sheet: A step-by-step guide

Building a balance sheet is an important practice that must be conducted on either a quarterly or monthly basis. This financial statement provides a snapshot of a company’s financial position at a given moment. It’s key to tracking your business’s financial health, securing loans, and making informed decisions. It helps identify cash flow trends, assess short-term and long-term debt levels, and measure overall stability.

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Here, we dive into the essential components, along with how to create a sheet that balances as intended.

What is a balance sheet?

Along with an income statement and cash flow statement, a balance sheet is one of the three fundamental financial statements every business owner needs to have in order to perform financial modeling and accounting. As the name suggests, your company’s assets must always be equal to the combined value of your liabilities and equity:

Assets = Liabilities + Equity

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This equation’s terms are defined as:

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How to make a balance sheet

You can use a spreadsheet program, such as Excel or Google Sheets, or accounting software such as QuickBooks or Xero. If you prefer full control, a spreadsheet is great for customization. If you want automation and accuracy, accounting software is the better option.

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Here are instructions for both options:

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Using a spreadsheet to make a balance sheet

If you're handling your financials manually, a spreadsheet allows for flexibility and customization. Follow these steps to create a structured balance sheet:

1. Set up your spreadsheet structure

Open Excel or Google Sheets and create three columns:

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• Column A: Account category (Assets, Liabilities, Equity)
• Column B: Account name (e.g., Cash, Accounts Payable)
• Column C: Balance amount ($)

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Label three main sections:

• Assets
• Liabilities
• Equity

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Example spreadsheet layout

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2. Enter asset balances

• List all current assets: Cash, accounts receivable, inventory
• List all non-current assets: Property, equipment, long-term investments

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Sum these amounts to get total assets using this formula, adjusting the cell range based on your data:

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=SUM(C2:C6)

3. Enter liability balances

• List all current liabilities: Accounts payable, short-term loans
• List all non-current or long-term liabilities: Long-term loans, bonds payable

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Sum these to get total liabilities using:

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=SUM(C7:C8)

4. Enter equity balances

• Include: Owner’s capital, retained earnings, and treasury stock, if applicable

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Calculate total equity using:

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=SUM(C9:C9)

5. Verify the accounting equation

Use the formula to confirm your balance sheet is correct:

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Total Assets = Total Liabilities + Total Equity

Example final calculation

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If your totals don’t match, check for errors in data entry or missing accounts.

Using accounting software to make a balance sheet

Accounting software automates calculations and ensures accuracy. Here’s how to generate a balance sheet in QuickBooks Online, Xero, or other similar platforms:

1. Navigate to the reports section

• Log in to your accounting software
• Go to the Reports tab
• Search for “Balance Sheet” in the available reports

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Sample QuickBooks online path:

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Reports → Standard Reports → Balance Sheet

2. Select the reporting period

• Choose a specific date for a snapshot
• You can also choose a comparison period to track changes over time

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Sample date selection:

• Balance sheet as of: December 31, 2024
• Comparison: December 31, 2023 (to compare year-over-year)

3. Review the automatically generated balance sheet

• The system will pull real-time data from your recorded transactions
• The balance sheet will display assets, liabilities, and equity in a structured format

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Example QuickBooks balance sheet:

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Step 4: Customize and export your balance sheet

• Filter by departments or locations if needed
• Modify formatting (cash basis vs. accrual basis)
• Export the report as a PDF or Excel file

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How to avoid common balance sheet errors

Even small errors on a balance sheet can lead to incorrect financial insights, misinformed decisions, and potential compliance issues. Here are the most common ones, along with how to prevent them: 

• Not balancing the accounting equation: Always use the formula Assets = Liabilities + Equity to verify accuracy. If they don’t match, check for missing or misclassified entries.
• Misclassifying assets and liabilities: Follow a clear structure to distinguish between current assets and liabilities vs. non-current
• Ignoring depreciation and amortization: Record depreciation each period using methods such as straight-line or declining balance to reflect asset value accurately
• Overlooking accrued expenses: Keep a record of accrued liabilities and ensure they appear under short-term liabilities
• Not updating the balance sheet regularly: Update it monthly or quarterly to track financial health and make informed decisions
• Double-counting transactions: Classify correctly—purchases meant to last more than a year should be listed as assets, while everyday expenses should go in the income statement
• Forgetting to reconcile bank statements: Perform monthly reconciliations to catch missing or duplicate transactions
• Incorrectly valuing inventory: Use an inventory valuation method such as FIFO, LIFO, or weighted average cost to ensure accuracy
• Ignoring owner’s draws and contributions: Always record owner’s draws and capital contributions in the equity section

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Advanced tips for a more useful balance sheet

A balance sheet is more than just a financial snapshot—it can be a powerful tool for decision-making. Here are some advanced tips to make your balance sheet more insightful and actionable.

1. Use ratios to analyze financial health

Analyzing a company's assets using financial ratios helps you assess liquidity, profitability, and leverage. Some key ratios to calculate from your balance sheet include:

Current ratio

• Current Assets / Current Liabilities
• Measures short-term liquidity; a ratio above 1 generally indicates good financial health

Debt-to-equity ratio

• Total Liabilities / Total Equity
• Shows how much of the business is financed by debt vs. owner investment; a lower ratio suggests less financial risk

Return on equity (ROE)

• Net Income / Total Equity
• Helps gauge how effectively the company is using equity to generate profit

2. Distinguish between liquid and non-liquid assets

Not all assets have the same impact on financial stability. Cash and accounts receivable are readily available, while property and equipment take time to convert into cash. Breaking out liquid assets vs. non-liquid assets can improve cash flow management and highlight potential risks.

3. Track trends over time

Rather than examining a balance sheet in isolation, analyze it across multiple periods to identify trends. Creating quarterly or year-over-year comparisons helps with spotting patterns:

• Growing liabilities without a corresponding rise in assets may signal financial strain
• Declining equity could indicate losses or excessive withdrawals by owners
• Increasing accounts receivable might suggest slow customer payments

4. Adjust for inflation and market value

The historical cost principle means that many assets are recorded at their original purchase price. However, real estate, investments, and some equipment may appreciate over time.

• Consider regularly revaluating key assets, such as property, so they reflect fair market value
• If inflation is high, analyze how rising costs impact liabilities and purchasing power

5. Segment data for greater clarity

Instead of presenting a single lump sum for each category, break it down for better insights:

• Separate accounts receivable by age to see if overdue payments are a problem
• Categorize liabilities by short-term vs. long-term obligations
• Break down equity to show retained earnings vs. additional paid-in capital

6. Consider off-balance sheet items

Some financial obligations don’t appear directly on a balance sheet but still affect your financial position. Adding footnotes or disclosures about these items makes your balance sheet more transparent:

• Operating leases, which may not be recorded as liabilities
• Pending lawsuits that could result in financial losses
• Loan guarantees or contingent liabilities

7. Account for industry-specific considerations

Different industries have unique balance sheet structures. Understanding these differences ensures more accurate financial analysis:

• Retail and e-commerce: Inventory is a major asset; turnover ratios and seasonal fluctuations should be monitored closely
• Manufacturing: Fixed assets such as machinery and production equipment often dominate; you must carefully track depreciation
• Technology and software-as-a-service (SaaS): Intangible such as patents and software development costs may represent significant value
• Real estate: Property valuation fluctuations greatly impact asset value; you may need to make fair market adjustments
• Financial services: Loan loss reserves and regulatory capital requirements are critical for banks and lenders

8. Connect your balance sheet to other financial statements

A balance sheet alone doesn’t show revenue, expenses, or cash flow. To get a full financial picture:

• Compare equity changes to net income from your income statement
• Check how cash balances align with your cash flow statement
• Ensure liabilities match obligations recorded in other reports

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Ramp: Greater visibility and a faster monthly close

By building your three core financial statements—balance sheet, income statement, and cash flow statement—into your calendar, you’ll enjoy greater visibility into your company’s financial future. This can help you make better business and financial decisions. However, creating balance sheets on a quarterly or monthly basis can be a time-consuming process, even with accounting software or bookkeeping software.

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There’s where Ramp can help.

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Ramp is the only corporate card that streamlines the balance sheet creation process. This is due to the automated expense management and real-time spend tracking platform built into the card. With Ramp on your team, you can create a balance sheet and close your books faster.