Definition
A classified Balance sheet is a financial statement portraying financial position of the business wherein the elements assets, liabilities and equity are classified in an expressive manner. Each balance sheet account is break down into a sub category for conveying better information.
Elements of balance sheet include assets, equities and liabilities. Expressive manner here means categorizing these elements in meaningful sub-classes. Such categorizing really helps the reader in understanding different relations and factors of financial position.
This is up-to management’s decision and discretion that how they want their balance should look like and how assets, equities and liabilities are to be presented in balance sheet. Management while deciding this, can seek help from GAAP and guidelines provided by International Accounting Standards. Usually two main categories i.e. Current and Non-current are used for assets and liabilities to be shown in the Balance sheet. However, at the time of deciding contents’ presentation, management should focus on intended categories to be quite meaningful and reader/user friendly. We know that from the contents of Balance sheet and from their meaningful presentation, readers retrieve very useful information of their use and evaluate progress.
Explanation & Format
In this accounting course, we have already described that the current trend of presenting elements of balance sheet revolve around two main categories i.e. Current and Non-Current. Both Assets and liabilities are recorded under these two main categories. How this presentation is done, we will show you in the ensuing examples.
Non-current Assets
Non-current assets are those assets which are assumed not be readily convertible into cash within one year from the date of Balance Sheet. These assets are also called long-term assets and include fixed assets, longer term investments.
Presentation
Non-current assets are presented in classified balance sheet under the main heading of assets. Look at the following example
|
Non-Current Assets |
($) |
|
Fixed assets – at cost |
25,000
10,500 |
|
Total Non-Current Assets |
48,200 |
Current Assets
Those assets which are available in cash and/or expected to be converted into cash within one year from the date of Balance Sheet are called current assets. These assets comprise of cash in hand, cash at bank, closing stocks etc.
Presentation
Likewise, non-current assets, current assets too are shown under the main heading of Assets. The sub-total of current assets is added with the total of non-current assets shown at the top and thus the figure of total assets is arrived at.
|
Current Assets |
($) |
|
Stocks in trade |
11,000
5,000 |
|
Total Current Assets |
62,405 |
Equity / Capital
Equities represents ownership interest in the business. This is also taken as difference between total assets and total liabilities. Equity or capital also refer to the ‘net assets’ of the business. Equity can also be taken as owner’s liabilities over the business. This portion of the Balance sheet displays the owners’ investment, other reserves and the amount of accumulated profits or losses. The portion of equities and liabilities in a balance sheets starts with elements of equity.
Presentation
More often equities are shown at the top of liabilities portion. In other words, equity items are presented before the presentation of liabilities (both long & short term).
|
Equities |
($) |
|
Capital
General Reserves |
50,000 35,000
85,000 |
|
Total Equities |
95,000 |
Liabilities
Liabilities refer to the business obligations as a result of accounting transaction taken place in past. These are also taken as sums of money that business owes to outsiders like creditors, suppliers etc. Liabilities can also be defined as present obligations arisen from past events.
From the presentation viewpoint, liabilities or liabilities portion is balance sheet is further sub-divided into two main categories i.e. non-current or long-term liabilities and the current liabilities.
Non-Current or Long-Term Liabilities
These are actually those obligations which the management presumes to be paid off after the period of one year. In other words, obligations the payment date of which matures longer than 12 months are termed as Non-current or Long-term liabilities. Long-term liabilities may include bank borrowings, long term securities received etc.
|
Long Term Liabilities |
($) |
|
Bank Borrowings |
21,000 |
|
Total Long Term Liabilities |
36,000 |
Current Liabilities
Contrary to long-term liabilities as above, current liabilities are those obligations which the management expects to be paid off within one year. Current liabilities may encompass account payables, note payables, accruals etc.
|
Current Liabilities |
($) |
|
Accounts Payable |
13,000 |
|
Total Current Liabilities |
31,300 |
Classified Balance Sheet Example
Following is the example of classified balance sheet where you can easily understand categorization of balance sheet accounts.
