Classified Balance Sheet Financial Accounting

An unclassified balance sheet can be appropriate when there are few line items to report, as may be the case for a shell company or a small business that has very few assets or liabilities. If this approach is used, assets are presented in order of liquidity, so that cash is presented first and fixed assets are presented last. Similarly, liabilities are presented in order of when they are due, so that accounts payable are classified balance sheet listed first and long-term debt is listed last. 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 include 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.

• Whatever system of classification is used should be applied on a consistent basis, so that balance sheet information is comparable over multiple reporting periods.
• This presentation is needed in order to derive liquidity ratios, such as the current ratio, that depend on the presentation of current asset and current liability subtotals.
• The classifications used can be unique to certain specialized industries, and so will not necessarily match the classifications shown here.
• Similarly, liabilities are presented in order of when they are due, so that accounts payable are listed first and long-term debt is listed last.
• It is extremely useful to include 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.
• An unclassified balance sheet can be appropriate when there are few line items to report, as may be the case for a shell company or a small business that has very few assets or liabilities.
• A classified balance sheet presents information about an entity’s assets, liabilities, and shareholders’ equity that is aggregated (or “classified”) into subcategories of accounts.

This presentation is needed in order to derive liquidity ratios, such as the current ratio, that depend on the presentation of current asset and current liability subtotals. 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.