What Are Classified Balance Sheets?
Classified balance sheets are used in accounting practices to list assets, liabilities and stockholder equity by breaking them down into specific categories. This classified format makes it easier to read and interpret them.
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Features
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A classified balance sheet is dated and begins by listing assets. The following examples are some of the things included under the heading of assets:
-Current assets are cash (currency, checking and savings accounts), inventory (use a current audit), notes and interest receivables.
-Long-term investments are things like stock you own in a company and real estate investments.
-Property includes the land your business sits on, equipment (office, industrial and vehicles) and accumulated depreciation on that equipment.
-Intangible assets are, for example, trademarks.
The classified balance sheet also has a liabilities and stockholder equity section. Remember to do a current audit of the items in these categories:
-Current liabilities include all accounts payable, current notes payable, salaries payable and unearned sales revenues.
-Long-term liabilities refer to things like mortgages or long-term notes.
-Stockholder equity will include common stock and retained earnings.
Note: Each of the assets and liability sections of the balance sheet need to include the total of the specific categories.
Function
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When you conduct an internal audit required to specifically list your assets, you might find that you overlooked something important. For example, inventory is often guesstimated and the true value is not assessed, or you might overlook an invoice and owe more than you realized.
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Significance
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Important decisions become easier to make when you accurately know where you stand. Considerations such as expanding or selling your business, remodeling or expanding your offices, replacing or repairing old equipment, deciding on raises or year-end bonuses and, perhaps, deciding on a loan.
Benefits
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Imagine if your income taxes were higher than they should have been because you failed to properly list all of your liabilities. Conversely, you might not get a bank loan if all your assets aren't listed. If created with accuracy, a classified balance sheet gives provides the bigger picture and is a vital tool for building and maintaining a successful business.
Expert Insight
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A Certified Public Account has the expertise to see that your statements are accurate and credible.
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