Classified balance sheet presents the components of assets, liabilities and equity classified as current and non-current items.
Assets are classified into current assets, property, plant equipment (PP&E), intangible assets and non-current investments.
Liabilities are classified into current liabilities and non-current liabilities. Stockholders’ equity are classified into paid-in capital and retained earnings.
Assets that are expected to be converted into cash within a year are classified as current assets. In some industries, if the normal operating cycle is longer than a year, assets that are expected to be converted into cash during the normal operating cycle are also classified as current assets.
Liabilities that are required to be paid within a year are classified as current liabilities. If the normal operating cycle is longer than a year, liabilities that are required to be paid during the normal operating cycle are classified as current liabilities.
Paid-in capital represents the amount invested by stockholders. Net income generated by an entity is added to retained earnings and the dividends paid to stockholders are subtracted from retained earnings. If an entity owns its own stock, it is classified as treasury stock. Treasury stock is subtracted from the stockholders’ equity section of balance sheet.
Review Questions
1. What are the components of a classified balance sheet?
- Current assets
- Non-current assets
- Current liabilities
- Non-current liabilities
- Paid-in capital
- Retained earnings
2. How are assets, liabilities and equity related?
Assets = Liabilities + Equity
3. How are the assets classified on the balance sheet?
Current assets and non-current assets
4. How are the liabilities classified on the balance sheet?
Current liabilities and non-current liabilities
5. How are the stockholders’ equity classified on the balance sheet?
Paid-in capital and retained earnings
6. What are the examples of current assets?
Cash, marketable securities, accounts receivable, inventory and prepaid expenses
7. What are the examples of non-current assets?
Land, buildings, equipment, patents, trademarks and copyrights
8. What are the examples of current liabilities?
Accounting payable, notes payable due within a year, salaries payable, income taxes payable and short-term borrowings
9. What are the examples of non-current liabilities?
Long-term borrowings and bonds payable