What Is a Classified Balance Sheet?

Last Updated July 18, 2024

The business balance sheet is one of the three major financial statements that help business leaders understand their company’s financial health and guide decision-making. The business balance sheet is essentially designed to provide a snapshot of the company’s current financial picture at a specific moment.

However, there are actually multiple types of balance sheets businesses can use, with the classified balance sheet being one of the most common options. Here’s what you need to know about how to use and prepare a classified balance sheet.

What Is a Classified Balance Sheet?

The classified balance sheet shows a business’s assets, liabilities, and owner’s equity. In any balance sheet, the idea is that the sheet is guided by the following formula:

Assets = Liabilities + Owner’s Equity

A classified balance sheet expands on the information found in a standard balance sheet by going into greater detail about the assets, liabilities, and equity that contribute to the totals. Assets, liabilities, and owner’s equity are broken down into additional subcategories to provide additional insights and information about the activities influencing the company’s cash flow and overall financial picture.

Classified Balance Sheet vs. Balance Sheet

So, what’s the difference between a classified balance sheet vs. unclassified balance sheet? In the broadest sense, the classified balance sheet serves the same function as a standard business balance sheet—displaying a snapshot of the company’s financial situation. However, when making a standard balance sheet, know that it will typically only display totals for assets, liabilities, and equity.

The classified balance sheet, on the other hand, breaks down these broad categories with additional classifications (such as breaking current assets into categories like cash and accounts receivable). A classified balance sheet will also often organize the assets in order of their liquidity and list liabilities by due date to provide a better understanding of cash flow management needs.

Why Is a Classified Balance Sheet Important?

A classified balance sheet makes it easy for investors, creditors, and business owners to evaluate the value of a company’s assets and debts. This document is often used to guide investing and lending decisions. Business owners can also use the classified balance sheet to help calculate cash, current, and quick ratios so they can better understand their current financial position.

Because of this, it is essential that business owners ensure their balance sheet is completely accurate and includes all relevant assets and liabilities. Making decisions based on an inaccurate balance sheet could be financially disastrous for the business. It could also result in legal repercussions (such as fraud accusations) if an investor or creditor made an investing or lending decision based on an incomplete document.

What Is On a Classified Balance Sheet?

As with a standard balance sheet, a classified balance sheet includes assets, liabilities, and owner’s equity. However, the classified balance sheet goes into additional detail. Understanding the common categories of a classified balance sheet will help ensure that nothing gets overlooked when using this document to evaluate the financial health of your business. Keep in mind that these balance sheet categories are typically broken down into additional classifications to provide further insights into business activities.

Current Assets

Current assets are assets that can be converted into cash or cash equivalents in a relatively short amount of time (typically less than one year). Common examples of current assets include:

• Cash
• Accounts receivable
• Inventory

Fixed Assets

Fixed assets are tangible items that a business uses to generate income. These assets last at least one year and depreciate in value over time. Common examples of fixed assets include:

• Land
• Buildings
• Furniture
• Vehicles
• Software and IT equipment
• Machinery such as manufacturing equipment

Related: Fixed Assets vs. Current Assets

Intangible Assets

Intangible assets do not have a physical form and can be more challenging to assign a set value. However, they do provide value for the business and influence its chances for success. Examples of intangible assets include:

• Brand recognition
• Intellectual property (including trademarks, copyrights, and patents)
• Goodwill

Long-Term Investments

Long-term investments are outside investments that the company wants to hold for over a year, usually with the goal that they will increase in value. Examples include:

• Real estate
• Stocks
• Bonds
• Investments in other companies

Current Liabilities

A business’s current liabilities are debts that need to be paid to creditors within the year. Examples include:

• Accounts payable
• Taxes
• Current portion of long-term debt, including interest payments
• Other short-term loans and accrued expenses

Long-Term Liabilities

Long-term liabilities are debts that a business holds that don’t need to be paid within a one-year period. Common examples of these liabilities include:

• Long-term loans and leases (including mortgages)
• Deferred revenue
• Deferred tax liability
• Shareholder Equity

Shareholder equity is the remaining value left for shareholders after liabilities have been subtracted from assets. Companies often have different types of equity, including:

• Retained earnings
• Net income
• Share capital
• Owner’s capital
• Dividend earnings

How to Prepare a Classified Balance Sheet

To prepare a classified balance sheet, be sure to keep in mind the balance sheet formula, Assets = Liability + Owner’s Equity. If these numbers don’t add up, there may be an issue with your calculations (including missing an item from one or more categories).

List All Assets by Subcategory

Start by listing out each asset subcategory that your business has. Make sure you account for both current and fixed assets. By breaking down each asset by subcategory, you can more easily identify if you are missing any assets from your calculations. Add up the total to determine your total assets, which appears as its own line item on the business balance sheet.

List All Liabilities by Subcategory

Similar to what you did for listing assets, next you’ll list all liabilities by their respective subcategories. Add up the total value of the liability subcategories to determine your total liabilities amount.

Add Shareholder Equity

Finally, you’ll add in existing shareholder equity, which can usually be derived by subtracting liabilities from assets. Shareholder equity should also be broken down into its respective subcategories—such as retained earnings, net income, and share capital—before determining the total amount.

Add Equity and Liability

To confirm that your classified balance sheet has been calculated correctly, you’ll add the total equity and liability amounts. This total should be equal to your business’s total assets. For example, a company with $1 million in assets might have $600,000 in liabilities and $400,000 in equity. In this case, 600,000 + 400,000 = 1,000,000, so the numbers match up. If the numbers don’t align, you will need to recalculate your totals.

Example of a Classified Balance Sheet

The sample classified balance sheet below offers an idea of what your own company’s classified balance sheet could look like. In this classified balance sheet sample, assets are broken down into several subcategories of current and fixed assets, and liabilities are broken down into subcategories for current and long-term liabilities.

Of course, your company may have additional subcategories beyond those included in this classified balance sheet example. Expand as needed to fully capture an accurate picture of your business’s financial health.

Assets
Current assets
Cash	100,000
Accounts receivable	40,000
Inventories	30,000
Total current assets	170,000
Fixed Assets
Equipment (including software)	25,000
Furniture	5,000
Vehicle	20,000
Total fixed assets	50,000
Total Assets	220,000
Liabilities & Equity
Current liabilities
Accounts payable	15,000
Other liabilities	3,500
Total current liabilities	18,500
Long-term Liabilities
Mortgage payable	60,000
Total long-term liabilities	60,000
Total Liabilities	78,500
Shareholders’ Equity
Capital	90,000
Retained Earnings	51,500
Total shareholders’ equity	141,500
Total Liabilities and Shareholders’ Equity	220,000

Classified Balance Sheet FAQs

How are assets classified on a classified balance sheet?

On a classified business balance sheet, assets are typically classified as current, fixed, or intangible. These asset classifications are then broken down into additional subcategories or classifications, such as cash, accounts receivable, equipment, buildings, and so on. This additional level of classification helps businesses better analyze their cash flow and sources of revenue.

How are short-term investments classified on a classified balance sheet?

Short-term investments in stocks or other assets are generally classified as current assets since they are held for less than one year. If the investment is meant to be held for over one year, it will be classified as a fixed or concurrent asset.

How often should you prepare a balance sheet?

Most businesses prepare a balance sheet at the end of each quarter. These business documents are prepared in conjunction with other major financial documents like the profit and loss statement and cash flow statement. In addition to quarterly statements, most businesses also produce annual reports at the end of their fiscal year that include a balance sheet. Using all three financial documents together is a key aspect of business accounting to ensure that a company’s finances are handled responsibly.

What is not reported on a classified balance sheet?

Assets and liabilities that are considered off-balance sheet (OBS) assets and liabilities will not appear on a classified balance sheet. OBS accounting often excludes items such as accounts receivable and operating leases from the business balance sheet. However, this practice is generally discouraged, as it presents an inaccurate picture of the company’s finances to investors and creditors, and could create legal liabilities. In recent years, legal efforts like the Sarbanes-Oxley Act have been introduced to further limit OBS assets and liabilities.