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Classified Balance Sheets

The balance sheet we learned to prepare in Lesson 1 was an unclassified balance sheet, even though we didn’t call it unclassified. In this lesson, we will learn how to prepare a classified balance sheet. In a classified balance sheet, rather than simply listing our assets and liabilities, we further break down assets and liabilities into categories.

Assets

Assets will be broken down into the following categories:

• current assets: These are assets that are expected to be converted to cash, sold, or used during the next 12 months. Examples of current assets include
  • cash,
  • accounts receivable,
  • office supplies,
  • prepaid rent, and
  • prepaid insurance.
• intangible assets: These are assets that do not have a physical existence, such as
  • patents,
  • trademarks, and
  • copyrights.
• plant assets: Also known as property, plant, and equipment; PPE; or fixed assets, these are long-term tangible assets, such as
  • vehicles,
  • equipment,
  • machinery,
  • buildings, and
  • land.
    
    ​Long-term assets are assets that benefit more than one accounting period. The asset must be used in the normal operation of the business to fit into this category. If one of the assets listed above is not used in the normal operation of the business, it would be included with long-term investments.

• long-term investments: These are assets that the company intends to hold for longer than one year that do not fit into any other category. Examples include tangible property not used in the normal operation of the business and investments in another company’s stock if you intend to hold the stock for more than one year.

Liabilities

Liabilities will be broken down into the following categories:

• current liabilities: These are liabilities that are to be paid with cash or services provided in the next 12 months.
• long-term liabilities: These are liabilities that do not need to be paid with cash or services provided in the next 12 months.

Stockholders’ Equity

The stockholders’ equity (owner’s equity) will still include only the following accounts:

• common stock (capital stock) and
• retained earnings.

We will discuss stockholders’ equity in further detail in a future lesson.