Question

Describe what a classified balance sheet is. Also, explain why a classified balance sheet might be more advantageous to financial statement readers than the simple balance sheet.

Answer 1

A classified balance sheet is balance sheet that presents information about an entity's assets, liabilities, and shareholders' equity  classified into subcategories of accounts. There are subtotal for each categories.

It is more advantageous because:

1. It present the information in an organised manner i.e. it categories the assets , liabilities and equity into different categories which help the financial users to read and understand the financial information easily.

In the simple balance sheet it is just listing the assets and liabilities in short term to long term or vice versa.

There is no subtotal in simple balance sheet.

The common classifications used within a classified balance sheet are:

• Current assets

• Long-term investments

• Fixed assets (or Property, Plant, and Equipment)

• Intangible assets

• Other assets

• Current liabilities

• Long-term liabilities

• Other liabilities

• Shareholders' equity