Briefly explain the sections of a classified balance sheet
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Briefly explain the sections of a classified balance sheet.
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Solution Summary
The solution first lists the common classification categories for a classified balance sheet. Following the list is a separate paragraph of three to four sentences to further explain each of the six categories. Examples are included for each category.
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Sections of the Classified Balance Sheet
a. Current Assets
b. Plant and Equipment
c. Other assets
d. Current Liabilities
e. Long-Term Liabilities
f. Owner's Equity or Retained earnings
a. Current assets are those which are expected to be used up within the next 12 months from the date of the balance sheet. They listed in order of liquidity (meaning how fast they will turn to cash) beginning with cash which is already cash, and usually followed by accounts receivable. Accounts receivable will usually turn to cash within 60 to 90 days as opposed to inventory which is a little further down the liquidity list. Inventory can be expected to be used with 60 to 120 days depending on the nature of the business and the efficiency of the operation. Inventory turns is the calculation which reveals how many times inventory is replaced during a year. Other current assets would include ...
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