Accountingtools: Balance Sheet Definition
Accountingtools: Balance Sheet Definition
Accountingtools: Balance Sheet Definition
The information listed on the balance sheet must match the following formula: SUBMIT
The format of the balance sheet is not mandated by accounting standards, but rather by customary
usage. The two most common formats are the vertical balance sheet (where all line items are
presented down the left side of the page) and the horizontal balance sheet (where asset line items
are listed down the first column and liabilities and equity line items are listed in a later column). The
vertical format is easier to use when information is being presented for multiple periods.
The line items to be included in the balance sheet are up to the issuing entity, though common
practice typically includes some or all of the following items:
Current Assets:
• Cash and cash equivalents
• Inventories
• Assets held for sale
Non-Current Assets:
• Intangible assets
• Goodwill
Current Liabilities:
• Accrued expenses
• Current tax liabilities
Non-Current Liabilities:
• Loans payable
• Deferred tax liabilities
Equity:
• Capital stock
• Additional paid-in capital
• Retained earnings
Domicilio Corporation
Balance Sheet
ASSETS
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Shareholders’ Equity
Within the balance sheet, the following should be classified as current assets:
• Cash. This includes all liquid, short-term investments that are easily convertible into cash. Do
not include in current assets cash that is restricted, or to be used to pay down a long-term
liability.
• Marketable securities. This includes all securities that are held for trading.
• Accounts receivable. This includes all trade receivables, as well as all other types of
receivables that should be collected within one year.
• Prepaid expenses. This includes any prepayment that is expected to be used within one year.
• Inventory. This includes all raw materials, work in process, and finished goods items, less an
obsolescence reserve.
In general, any asset is classified as a current asset when there is a reasonable expectation that the
asset will be consumed within the next year, or within the operating cycle of the business. All other
assets are to be classified as non-current.
Within the balance sheet, the following should be classified as current liabilities:
• Payables. This is all trade payables related to the purchase of goods or services from
suppliers.
• Accrued expenses. This is expenses incurred by the business, for which no supplier invoice
has yet been received.
• Short-term debt. This is loans for which payment is due within the next year.
• Unearned revenue. This is advance payments from customers that have not yet been earned
by the company.
In general, a liability is classified as current when there is a reasonable expectation that the liability
will come due within the next year, or within the operating cycle of the business. All other liabilities
are to be classified as non-current.
• Current ratio
• Debt to equity ratio
• Inventory turnover
• Quick ratio
Many of these ratios are used by creditors and lenders to determine whether they should extend
credit to a business, or perhaps withdraw existing credit.
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