About Balance Sheet Formats
Balance sheets provide a breakdown of assets, liabilities and owner's equity so that stakeholders, investors and members of the management team can obtain an overview of each account at the end of the accounting period. This serves as a snapshot of important accounts at the end of the accounting period. When creating and presenting a balance sheet, companies can classify and disclose certain accounts in a different way by using one of two generally accepted balance sheet formats.
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Significance
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Companies that use the traditional balance sheet format will display the equity totals as current assets minus current liabilities, plus non-current assets minus non-current liabilities. Any debt financing accounts are listed in the liabilities section. Companies that use a financial analysis balance sheet break modify the traditional equation to remove the debt financing accounts from the operating section of the accounts and move them into the equity side.
Features
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Balance sheets are created to report the values of assets, liabilities and long-term liabilities at the end of an accounting period. Asset accounts include current assets and prepaid expenses, along with fixed assets such as equipment and fixtures. Liabilities consist of accounts payable, notes and accrued payroll expenses. Long-term liabilities consist of notes payable and any debt financing obtained. All of these accounts are displayed in a different way depending on which balance sheet format is selected.
Types
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A balance sheet is also known as a "statement of financial position" and is created to show the company's liquidity and financial leverage at the end of the accounting period. A company may choose to report using the traditional balance sheet format or a financial analysis balance sheet format. While both offer the same values and information, the financial analysis balance sheet provides more details and a fair representation of equity and working capital.
Benefits
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A balance sheet provides an accurate picture of a company's financial standing at the end of the accounting period. Companies that select the financial analysis balance sheet can show their actual assets and working capital accounts more clearly than if they were using a traditional balance sheet format. The financial analysis balance sheet is most beneficial when presenting end-of-period accounts to stakeholders and investors who need to see a breakdown of the working capital and equity.
Considerations
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Small and mid-sized companies may benefit most from using the traditional balance sheet format because of its simplicity. Large companies and corporations that are partially owned by investors or a third party can benefit most from the financial analysis balance sheet format because this clearly identifies accounts that are most important to stakeholders.
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