Definition: A classified balance sheet is a financial statement that presents the assets, liabilities, and equity in relevant sub-categories that will be useful for end users. There is no required format or number of sub-categories, but the most common sub-categories are current and non-current.
What Does Classified Balance Sheet Mean?
Current assets consist of resources that will be consumed within a year or the next accounting period. Cash, for example, is considered a current asset because it can be used within the next year. A building, on the other hand, is considered a non-current asset because it will provide benefits to the company for many future years.
Liabilities are also split into current and non-current categories. These are pretty easy to distinguish between. Current liabilities are any debts that become due in the next year or accounting period. Non-current or long-term liabilities, on the other hand, become due in more than one year. Accounts payable is considered current while a mortgage is considered non-current.
Example
The classified balance sheet splits assets and liabilities into current and non-current categories because creditors and investors want to know what assets will be used up in the next year and what debts will become due. This also helps end users determine the liquidity of the company.
A classified balance sheet can also separate non-current assets into sub-categories like fixed assets, intangible assets, and long-term investments. This detail allows financial statement users to see how much the company has invested in capital equipment, buildings, trademarks, and other investments. Tracking the investments in any of these categories year over year could help investors speculate about the growth of the company and the future production strategies.
Also, fixed assets are depreciated and intangibles are amortized over their useful lives, so the balance also shows investors the book value of each section.
In short, the aim of the classified balance sheet is to give investors and creditors more useful information about the company.
