Classified 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 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. 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.

There is no standardized classification system. Instead, a business can choose which accounts will be included in each balance sheet line item. The most common classifications used within a classified balance sheet are as follows:

• Current assets. Includes all assets likely to be liquidated within one year, such as accounts receivable and inventory.
• Long-term investments. Includes any investments that are unlikely to be liquidated in less than one year, such as an investment in a rental property.
• Fixed assets (or Property, Plant, and Equipment). Includes higher-cost items that are likely to provide value for more than one year, such as buildings, machinery, vehicles, and computer systems.
• Intangible assets. Includes any assets that have no physical substance, such as copyrights, trademarks, and patents.
• Other assets. Includes any assets that do not readily fall into one of the preceding asset categories.
• Current liabilities. Includes all liabilities likely to be settled within one year, such as accounts payable and property taxes payable.
• Long-term liabilities. Includes all liabilities that will not be settled within one year, such as notes payable.
• Shareholders' equity. Includes the amounts paid into a business by investors, plus any retained earnings. This classification includes common stock, preferred stock, additional paid-in capital, treasury stock, and retained earnings.

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The sum of these classifications must match this formula (known as the accounting equation):

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.

Common Balance Sheet Classifications

There is no specific requirement for the classifications to be included in the balance sheet. The following items, at a minimum, are normally found in a balance sheet:

• Cash and cash equivalents
• Trade and other receivables
• Prepaid expenses
• Investments
• Inventories
• Assets held for sale

• Investments in other companies

• Computer hardware
• Computer software
• Furniture and fixtures
• Leasehold improvements
• Office equipment
• Production equipment
• Accumulated depreciation

• Intangible assets
• Accumulated amortization
• Goodwill

• Trade and other payables
• Accrued expenses
• Current tax liabilities
• Current portion of loans payable
• Other financial liabilities
• Liabilities held for sale

• Loans payable
• Deferred tax liabilities
• Other non-current liabilities

• Capital stock
• Additional paid-in capital
• Retained earnings

Example of a Classified Balance Sheet

Here is an example of a classified balance sheet, where the classifications are listed in bold in the first column:

Holystone Dental Corp.
Statement of Financial Position