The Classified Balance Sheet What are we Supposed to do with All those Columns!?!

A classified Balance Sheet “classifies” accounts into various sub-categories. Often, these categories are related to how long an asset will be with the company, or how long we have before a liability must be paid. Let's look at the basic classifications: Assets are normally divided into two categories: 1. Current Assets (which will be used within one year), and 2. Fixed Assets (which will remain after one year.) Liabilities should also be divided into two categories: 1. Short-term Liabilities (Must be paid within one year.), and 2. Long-term Liabilities (Will take longer than a year to pay.) Owner's equity remains the same as always. (It's not classified.)

Once we divide our Assets and Liabilities into these categories, the columns become much easier to understand. You see, for every classification (ie. Assets, Current Assets, etc. ) we have to indicate a section title and a section total on the Balance Sheet. Total Current Assets Total Fixed Assets Total Assets Every section total will go in the far right column.

Once we start listing CONTRA accounts, then we will place the contra account, as well as the account that it is contradicting, in the far left column. These accounts need to be adjusted to create a “net figure.” Thus, they are placed in the far left column. Regular account balances, and any adjusted “net figures” go in the middle column.

A Closer Look at Long-Term Liabilities Some of our mortgage payable needs to be paid within one year. Imagine a $ monthly payment... The current portion is deducted from the long-term amount to create a net figure.

In summary… Section totals go in the far right column. Accounts that need to be adjusted in order to create a “net” figure go in the far left column. And everything else goes in the middle column!

Once you memorize the accounts that are adjusted in order to arrive at a “net figure” (ie. accounts that are associated with a CONTRA account, individual account receivables, individual account payables, and Net Income and Drawings) it’s pretty easy to prepare a “Classified Balance Sheet.” Please see page #270 for a good example of a classified balance sheet. Thanks for listening!!!