What is a Classified Balance Sheet?
A classified balance sheet is a financial statement that accounts for share, liability, and equity balances from meaningful subcategories for viewers ease of use. In other words, it breaks down each of the balance sheet accounts into smaller categories to conceive a more useful and meaningful report.
There’s no standardized set of subcategories or required amount that must be used. Management can decide what types of classifications to use, but the most common tend to be current and long-term.
This format is important because it gives end users more information about the company and its operations. Creditors and investors can use these categories in their financial analysis of the business. For instance, they can use measurements like the current ratio to assess the company’s leverage and solvency by comparing the current shares and liabilities. This type of analysis wouldn’t be possible with a traditional equilibrium sheet that isn’t classified into current and long-term categories.
Let’s take a look at a classified balance sheet example.
As you can see, each of the main accounting equation accounts is breach into more useful categories. This format is a lot easier to read and more informational than a report that simply lists the shares, liabilities, and equity in total. You can use this example as a template for your homework or business.
Remember, there are no set subcategory requirements across industries. For instance, a manufacturer might list different categories from a retailer. You can do the similarly thing.
Let’s walk through each one of these sections and answer the question what is a classified balance sheet.
The shares section is typically broken down into three main subcategories: current, fixed shares, and others.
Current shares include resources that are consumed or used in the current period. Cash and accounts receivable the most common current shares. Also, merchandise inventory is classified on the balance sheet as a current share.
Fixed shares consist of property, plant, and equipment that are long-term in nature and are used to produce goods or services for the company. These long-term shares are typically depreciated over time and reported at their historical cost along with the associated accumulated depreciation.
The other shares section includes resources that don’t fit in both of the other groups like intangible shares. This is a listing of the most frequent shares utilized in every segment.
- Current Assets
- Accounts receivables
- Prepaid expenses
- Investments held available
- Fixed Assets
- Furniture and fittings
- Leasehold improvements
- Less: Accumulated depreciation
- Other Assets
- Less: Accumulated Amortization
The obligations segment is typically divided up into three chief subcategories: present, longterm, and proprietor officer.
Current liabilities comprise all debts which will eventually become due in the current period. To put it differently, this is the quantity of principle that’s needed to be paid back in the following 12 weeks. The most usual present liabilities are accounts receivable and accrued expenses.
The long term segment lists the duties that aren’t expected in the subsequent 12 weeks. These duties maybe 5, 10, or even 30-year notes. Remember some of those long-term notes are expected in the subsequent 12 weeks. Therefore, this part is reported in the present segment.
The owner/officer debt department only comprises the loans by the shareholders, partners, or officers of the business. This section provides creditors and investors advice regarding the origin of debt and much more significantly an insight into the funding of the business. As an example, if there’s a huge student loan to the novels, it may signify the corporation may fund its operations with benefits and it can’t even qualify for a payday advance. This info is valuable to any possible lender or investor.
Here’s a good illustration of what the obligations section typically resembles:
- Current Liabilities
- Accounts payable
- Accrued expenditures
- Line of charge
- Current Part of long-term debt
- Long-term Liabilities
- Commercial loans payable
- Mortgages payable
- Deferred taxation payable
- Owner’s Liabilities
- Due to shareholder/partner
- Due to innovation
The equity section of a classified balance sheet is quite straightforward and like some non-classified report. Common share, added paid-in funds, treasury share, and retained earnings are recorded for businesses. Partnerships listing member funds balances, contributions, distributions, and revenue for this time.