Balance Sheet of Juan Dela Cruz Sari-Sari Store

 What is a Balance Sheet? Balance sheet is a sheet that is balance. The balance sheet is always balance. That is Assets = Liabilities + Equity. What you can see in the Balance Sheet are balances of your assets and sources of your capital. It is a summary of balances, hence the Balance Sheet.

Before you proceed further, it is necessary to read my previous blog so that you’ll have an understanding of the reports presented below. Here it is Juan DelaCruz Sari-Sari Store.

Let’s take the trial balance we have in the previous blog.

JUAN DELA CRUZ SARI- SARI STORE

TRIAL BALANCE

AS OF OCTOBER 31, 2013

(In Philippine Peso)

Account Titles                                          Debit                   Credit

Cash                                                           15,000

Inventory                                                     15,500                

Store Building                                             20,000    

Accumulated Depreciation                                                         167

Owner’s Equity                                                                       50,000

Sales                                                                                         5,000

Cost of Goods Sold                                      4,500

Depreciation Expense                                     167

Total                                                           55,167                 55,167

Based on the above trial balance, we will generate the balance sheet. Let’s begin with Current Assets. Current Assets are assets which are current. They are expected to be sold or used within one year.

Cash and Inventories are classified as current because they are expected to be used or sold within one year. Structure of Current Assets in the Balance Sheet is shown below.

However, there are businesses whose operating cycle is greater than one year. An operating cycle is the length between paying employee salaries or buying materials and collecting cash from customers. A shipbuilder building a ship tanker takes more than two years to finish and deliver the ship to customer. Thus, the operating cycle of a shipbuilder is not one year but rather more than two years.

Let’s move to Non-Current Assets. Non-Current Assets are assets which are not current. They are not expected to be sold or used within one year.

Store Building is classified as non-current because it is expected to be used for more than one year. In fact, you estimated it to last for ten years. Thus, the economic benefits the store building will bring is more than one year, hence it is treated as non-current assets. The store building cost 20,000. This 20,000 cost should be allocated or spread out for ten years, its estimated useful life. Using straight line method, monthly depreciation is Php 167 (20,000÷120 months). Below is the structure for Non-Current Assets.

Owner’s Equity

Next is the Liabilities and Owner’s Equity. Since, there are no liabilities in our example, we’ll ignore that for the meantime. We’ll go on to the Owner’s Equity Account. The Owner’s Equity’s balance in the trial balance is 50,000.

Closing (Consolidate) the Income Statement Accounts to Income Summary Account

Sales, Cost of Goods and Depreciation Expense accounts are not Balance Sheet accounts. They are Income Statement Accounts. They do not appear in the Balance Sheet. In order to transfer these account balances, we must create closing entries. Closing entries are:

Date	Account Title	Debit	Credit
31-Oct-13	Income Summary		333
31-Oct-13	Sales	5,000
31-Oct-13	Cost of Goods Sold		4,500
31-Oct-13	Depreciation Expense		167
	To close the income statement accounts to Income Summary

What have you noticed? First, Sales which has a credit balance in the trial balance was debited in the closing entry so its balance is now zero. Cost of goods sold and depreciation expense were credited in the closing entry, their balances are now zero. What happened is that we closed the income statement accounts and created a “profit and loss” account which in this case is the Income Summary account. The income summary account is the profit of the store for the period of October 2013. Its balance of 333 is the profit of the store.

Transferring Net Income to Balance Sheet

This Income Summary account is still an Income Statement account. What we did was to consolidate all the Income Statement accounts into one summary account.

This Income Summary account which in reality is profit of the store for October 2013 can now be transfer to Owner’s Equity. The entry is:

Date	Account Title	Debit	Credit
31-Oct-13	Income Summary	333
31-Oct-13	Owner’s Equity		333
	To close the income summary account  tp Owner’s Equity

The Income statement account balances are all zero at this point in time after considering the closing entries. Let’s take a look at the trial balance after the closing entries.

JUAN DELA CRUZ SARI- SARI STORE

TRIAL BALANCE

AS OF OCTOBER 31, 2013

(In Philippine Peso)

Account Titles                                          Debit                   Credit

Cash                                                           15,000

Inventory                                                     15,500                

Store Building                                             20,000    

Accumulated Depreciation                                                          167

Owner’s Equity                                                                       50,333

Total                                                           50,500                 50,500

If you noticed, there are no more Income Statement Accounts. The remaining accounts are all balance sheet accounts. From this, we can proceed in generating the Balance Sheet of Juan Dela Cruz Sari Sari Store.