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TOPIC 8: BALANCE SHEET (CLASSIFIED) | B/KEEPING FORM 3

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Meaning of Each Asset and Liability Classification Appearing on a Balance Sheet

Define each asset and liability classification appearing on a balance sheet
A
classified balance sheet presents information about an entity’s assets,
liabilities, and shareholders’ equity that is aggregated (or
“classified”) into subcategories of accounts. It is extremely useful to
use classifications, since information is then organized into a format
that is more readable than a simple listing of all the accounts that
comprise a balance sheet. When information is aggregated in this manner,
a balance sheet user may find that useful information can be extracted
more readily than would be the case if an overwhelming number of line
items were presented.
The most common classifications used within a classified balance sheet are:
  • Current assets
  • Long-term investments
  • Fixed assets (or Property, Plant, and Equipment)
  • Intangible assets
  • Other assets
  • Current liabilities
  • Long-term liabilities
  • Shareholders’ equity
The sum of these classifications must match this formula:Total assets = Total liabilities + Shareholders’ Equity
The
classifications used can be unique to certain specialized industries,
and so will not necessarily match the classifications shown here.
Whatever system of classification is used should be applied on a
consistent basis, so that balance sheet information is comparable over
multiple reporting periods.
Balance Sheet Items
Classify balance sheet items
There
is no specific requirement for the classifications to be included in
the balance sheet. The following items, at a minimum, are normally
included in the balance sheet:
Current Assets:
  • Cash and cash equivalents
  • Trade and other receivables
  • Prepaid expenses
  • Investments
  • Inventories
  • Assets held for sale
Long-Term Investments:
  • Investments in other companies
Fixed Assets:
  • Computer hardware
  • Computer software
  • Furniture and fixtures
  • Leasehold improvements
  • Office equipment
  • Production equipment
  • Accumulated depreciation
Intangible Assets:
  • Intangible assets
  • Accumulated amortization
  • Goodwill
Current Liabilities:
  • Trade and other payables
  • Accrued expenses
  • Current tax liabilities
  • Current portion of loans payable
  • Other financial liabilities
  • Liabilities held for sale
Long-Term Liabilities:
  • Loans payable
  • Deferred tax liabilities
  • Other non-current liabilities
Shareholders’ Equity:
  1. Capital stock
  2. Additional paid-in capital
  3. Retained earnings
Preparation of Classified Balance Sheet
Prepare a classified balance sheet
Here is an example of a classified balance sheet, where the classifications are listed in bold in the first column:
Holystone Dental Corp. Statement of Financial Position
(000s) as of 12/31/x2 as of 12/31/x1
ASSETS
Current assets
Cash and cash equivalents $270,000 $215,000
Trade receivables 147,000 139,000
Inventories 139,000 128,000
Other current assets 15,000 27,000
Total current assets 571,000 509,000
Fixed assets
Furniture and fixtures 551,000 529,000
Leasehold improvements 82,000 82,000
Office equipment 143,000 143,000
Total non-current assets 776,000 754,000
Total assets $1,347,000 $1,263,000
LIABILITIES AND EQUITY
Current liabilities
Trade and other payables $217,000 $198,000
Short-term borrowings 133,000 202,000
Current portion of long-term borrowings 5,000 5,000
Current tax payable 26,000 23,000
Accrued expenses 9,000 13,000
Total current liabilities 390,000 441,000
Long-term liabilities
Long-term debt 85,000 65,000
Deferred taxes 19,000 17,000
Total non-current liabilities 104,000 82,000
Total liabilities 494,000 523,000
Shareholders’ Equity
Capital $100,000 $100,000
Additional paid-in capital 15,000 15,000
Retained earnings 738,000 625,000
Total equity 853,000 740,000
Total liabilities and equity $1,347,000 $1,263,000

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