Classified balance sheet

Definition

A classified balance sheet organizes assets and liabilities into current and non-current categories, providing a clear overview of an organization's liquidity. This structured format helps stakeholders understand the financial position more accurately.

5 Must Know Facts For Your Next Test

1. Assets on a classified balance sheet are divided into current and non-current (or long-term) assets.
2. Liabilities are categorized similarly into current liabilities and long-term liabilities.
3. Current assets typically include cash, accounts receivable, and inventory, while non-current assets may include property, plant, and equipment.
4. A key measure derived from a classified balance sheet is the current ratio, calculated as current assets divided by current liabilities.
5. The classified balance sheet aids in assessing working capital, which is the difference between current assets and current liabilities.

Review Questions

• What is the primary purpose of dividing a balance sheet into classified sections?
• How do you calculate the current ratio using figures from a classified balance sheet?
• What types of items would you find under non-current liabilities on a classified balance sheet?

Related terms

current ratio:

A liquidity ratio that measures a company's ability to pay short-term obligations with its current assets.

working capital:

The difference between an organization's current assets and its current liabilities.

liquidity: The ability of an organization to meet its short-term obligations using its most liquid assets.