A balance sheet that places the assets above the liabilities and equity is called a “classified balance sheet”. A classified balance sheet is a type of financial statement that provides a better way to organize the major components of the balance sheet and gives business owners and stakeholders an easier way to understand the organization’s financial position. The key components of a classified balance sheet are:
Assets:
Asset accounts are the items of value owned by a company and can be divided into current assets and long-term investments. Current assets represent items that a company can easily convert into cash, such as cash, accounts receivable, inventory, short-term investments, and prepaid expenses. Long-term investments refer to assets that will last for more than a year and include investments in machinery, equipment, and buildings.
Liabilities:
Liabilities represent the debts and obligations of a company. These can be divided into short-term liabilities, such as accounts payable and payroll taxes, and long-term liabilities, such as loans and mortgages.
Equity:
Equity represents the ownership interests or capital of a company. This includes contributed capital, such as shares of stock, and retained earnings.
A classified balance sheet is a more detailed version of the traditional balance sheet, providing a better picture of the company’s financial position. It enables users to quickly identify the resources a company has available to pay its debts and meet its obligations. It also provides information about the company’s liquidity – the ability to convert assets into cash to pay its liabilities. By organizing the balance sheet into its major components, users can quickly see how much of the company’s assets are liquid and how much are invested in long-term assets, as well as the amount of debt the company has.