Just opened your first spreadsheet and wondering how to prepare a balance sheet? If you’re starting your ACA Certificate Level, you’re likely already asking yourself What is Accounting and how to make sense of all these financial terms. The good news? Creating a balance sheet is easier than it looks when broken into simple steps. It’s not just about numbers, it’s about understanding your business.  

In this blog, we’ll walk through five beginner-friendly steps to help you confidently prepare your balance sheet and finally make the numbers tell a clear story. 

1. Know Why a Balance Sheet Matters 

It’s critical to understand the value of the balance sheet before proceeding to the phases. A balance sheet shows the state of a company’s finances at a specific point in time. It gives you a clear picture of what your company owns and owes. This is one of the first things you’ll need to learn if you’re aiming for your ACA Certificate Level. 

Accountants are not the only ones who can use it. It is used by banks and business owners to make informed decisions. It indicates whether a company is expanding or maintaining stability. It provides a financial narrative. You can better grasp accounting than just numbers by knowing how to read and make one. 

2. The Formula You Must Remember 

The heart of the balance sheet is a simple but powerful formula: 

Assets = Liabilities + Equity 

This is called the accounting equation. Everything on the balance sheet falls into one of these three parts. If the numbers on both sides do not match, something has been missed or recorded incorrectly. 

Understanding this equation helps you organise financial information properly. Once you get the logic behind it, you will see how each number affects the others. It is a simple rule, but it keeps your entire financial reporting in check. And in many ACA Certificate Level exam questions, knowing this formula is crucial for finding the correct answer. 

3. Start with Your Assets 

Begin by listing all your business assets. These are the resources your company owns. It can be something as simple as the cash in your bank or as large as a building. To keep it organised, split them into two types: 

• Current Assets: These are assets that are expected to be used or converted into cash within one year. Examples include cash, customer invoices or receivables, and stock or inventory. 
• Non-current Assets: These are long-term assets that support the ongoing operation of your business. Examples are equipment, company vehicles, and buildings. 

Record the value of each asset carefully. If you use accounting software, it may already be tracking some of this. If not, your bank statements and receipts will help. These totals form the left-hand side of your balance sheet. 

4. Add Your Liabilities 

Next, list what your business owes. These are your liabilities. Just like assets, they are grouped by how soon they need to be paid: 

• Current Liabilities: These are short-term debts due within the year, such as bills, supplier payments, wages, or taxes owed. 
• Non-current Liabilities: These are long-term debts, such as business loans, mortgages, or large equipment financing. 

It is essential to be honest when listing liabilities. Skipping or guessing numbers can cause major confusion. If you are preparing for ACA Certificate Level exams or handling real accounts, accuracy is everything. Even a small mistake can disrupt the entire balance sheet. 

5. Work Out the Owner’s Equity 

Once assets and liabilities are listed, the next step is to calculate owner’s equity. This illustrates the percentage of the business that belongs to the owner after paying off debts. It includes any money you invested in the business, as well as any profits that were not distributed to you. 

Use this formula: 

Equity = Assets – Liabilities 

This ensures your balance sheet is balanced. If not, double-check all the numbers. Every balance sheet must follow the accounting equation mentioned earlier. 

Conclusion 

Creating a balance sheet may seem difficult, but with the right approach, it becomes a practical and valuable skill. Especially if you are preparing for the ACA Certificate Level, learning what is accounting through hands-on examples like this makes all the difference. A course with MPES Learning can offer you even more confidence and clarity as you master these essential financial tools.