## Introduction to Provisional Balance Sheet

A **Provisional balance sheet **is a type of balance sheet that provides an initial snapshot of a company’s financial position. It is typically prepared at the beginning of a new accounting period before any actual transactions have taken place.

The purpose of a Provisional balance sheet is to give management and investors an early look at the company’s financial health, to inform decisions about how to allocate resources and make other strategic decisions.

## Step by Step Procedure to Create a Provisional Balance Sheet Format in Excel

In order to create a Provisional balance sheet, we need to know two major factors:

- Assets
- Liabilities & Ownerâ€™s Equity

__Assets__

An **asset **is anything that can be converted into cash. It can be cash itself, or something that can be sold for cash.

__Liabilities__

**Liabilities **are items for which money is owed, or which have been borrowed. They are recorded on the company’s balance sheet and appear as negative numbers. Liabilities can be either **present** or **long-term**. Long-term liabilities are those that are not due for another calendar year, whereas current liabilities are those that are due within the current financial year.

__Ownerâ€™s Equity__

**Ownerâ€™s equity **mostly refers to the shareholders’ portion of the company’s value, and represents the proportional distribution of the company’s worth in the event of a sale.

So, in order to create a Provisional balance sheet, we can divide the whole procedure into the following sections:

- Assets Calculation
- Liabilities Calculation
- Ownerâ€™s Equity Calculation
- Verifying Balance Sheet
- Financial Summary from Balance Sheet

__Final Results from A Provisional Balance Sheet__

There are five main financial results we can derive from a Provisional balance sheet:

**Debt Ratio**: The ratio between total liabilities and total assets.

**Current Ratio**: The ratio between current assets and current liabilities.

**Working Capital**: The difference between current assets and current liabilities.

**Assets to Equity Ratio**: The ratio between total assets and ownerâ€™s equity.

**Debt to Equity Ratio**: The ratio between total liabilities and ownerâ€™s equity.

### Step 1 – Assets Calculation

- Input the necessary
**Assets**categories along with their corresponding values.

- In cell
**E10**, calculate the**Total Current Assets**using the following formula:

`=SUM(E6:E9)`

- Press
**ENTER**to return the**Total Current Assets**.

- Insert any additional assets.
- In cell
**E13**, calculate the**Total Assets**by applying the following formula:

`=SUM(E10:E12)`

- Press
**ENTER**to return the**Total Assets**.

### Step 2 – Liabilities Calculation

Next, we calculate the total **Liabilities**.

- Enter the necessary
**Liabilities**categories and their corresponding values.

- In cell
**E20**, enterÂ the following formula to calculate the**Total Current Liabilities**:

`=SUM(E17:E19)`

- Press
**ENTER**to return the**Total Current Liabilities**.

- Insert the other
**Liabilities**. - In cell
**E23**, apply the following formula to derive the**Total Liabilities**:

`=SUM(E20:E22)`

- Press
**ENTER**to return**Total Liabilities**.

**Read More:** How to Prepare Charitable Trust Balance Sheet Format in Excel

### Step 3 – Ownerâ€™s Equity Calculation

- Enter the necessary
**Ownerâ€™s Equity**categories and their corresponding values.

- In cell
**E28**, enter the following formula to derive the**Total Ownerâ€™s Equity**:

`=SUM(E26:E27)`

- Press
**ENTER**to return the desired result.

### Step 4 – Verifying Balance Sheet

According to the balance sheet rule, the sum of **Liabilities **and **Ownerâ€™s Equity **should be equal to **Assets**. Let’s verify this:

- In cell
**E30**, use the following formula to calculateÂ the total value of**Liabilities**and**Ownerâ€™s Equity**:

`=SUM(E23,E28)`

Here,**
E23** =

**Total Liabilities**

E28=

E28

**Total Ownerâ€™s Equity**

- Press
**ENTER**to return the output.

- Check if the value satisfies the following equation:

**Assets = Liabilities + Ownerâ€™s Equity**

**Read More:Â **How to Create School Balance Sheet Format in Excel

### Step 5 – Financial Summary from Balance Sheet

Now we can calculate the Financial Parameters to summarize the whole balance sheet.

- To calculate the
**Debt Ratio**, in cell**E33**use the formula:

`=E23/E13`

Here,

**E23 **= **Total Liabilities
E13 **=

**Total Assets**

- To calculate
**Current Ratio**, in cell**E34**input the following formula:

`=E10/E20`

Here,

**E10 **= **Current Assets
E20 **=

**Current Liabilities**

- To calculate
**Working Capital**, in cell**E35**enter the following formula:

`=E10-E20`

Here,

**E10 **= **Current Assets
E20 **=

**Current Liabilities**

- To calculate
**Assets to Equity Ratio**, in cell**E36**enter the following formula:

`=E13/E28`

Here,

**E13 **= **Total Assets
E28 **=

**Ownerâ€™s Equity**

- In cell
**E37**, apply the following formula to calculate**Debt to Equity Ratio**:

`=E23/E28`

Here,

**E23 **= **Total Liabilities
E28 **=

**Ownerâ€™s Equity**

**Read More:Â **How to Create Monthly Balance Sheet Format in Excel

## Provisional Balance Sheet Format

Here is a template for creating a Provisional balance sheet for a company. Download it below, and just input the necessary amounts to generate a Provisional balance sheet.

**Download Practice Workbook**

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