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.
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.
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:
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:
- Capital stock
- Additional paid-in capital
- 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 |
