balance sheet

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:

(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