Accounting: The Language of Business - Vol. 2 (Intermediate: Part 68)

And when the chickens that didn't hatch come home to roost, we will rue the day when, misled by sloppy accounting and rosy scenarios, we gave away the national nest egg.

Paul Krugman

Statements of Financial Position and Cash Flows and the Annual Report (Part F)

by

Charles Lamson

 Balance Sheet Presentation and Format

 Assets, liabilities, and equity are the key elements on corporate balance sheets. This post describes the balance sheet presentation and the two formats found in practice.

 Asset Presentation

After grouping assets as current [A current asset—sometimes called a liquid asset—is a short-term asset that a company expects to use up, convert into cash, or sell within one fiscal year or operating cycle (shopify).].and noncurrent (Noncurrent assets, on the other hand, are long-term assets that cannot be readily converted into cash within one year.), companies make further classifications. Specifically, within current and noncurrent assets, companies list each asset in decreasing order of liquidity. Current assets precede noncurrent assets. The most liquid asset is first, followed by less liquid assets. Cash, the most liquid asset, is usually listed first, followed by short-term investments, receivables, and then other less liquid assets. 

Liabilities Presentation

Companies list liabilities in increasing order of maturity. That is, current liabilities are listed before long-term liabilities. Also, within each group, the individual liability accounts are listed in order of maturity. Thus, accounts payable is often the first liability listed on the balance sheet and is reported before the current portion of long-term debt.

Balance Sheet Format

There are two balance sheet formats:

1. The account format lists assets on the left side and liabilities and stockholders' equity on the right side of the statement.

2. The report format lists liabilities and stockholders' equity directly before assets on the same page.

Exhibit 6.2 presents a sample account format balance sheet for Breanne Baking Equipment Company. Exhibit 6.3 presents a sample report format balance sheet for the same company. Notice that there is no quantitative difference between these two formats. it is simply a matter of whether the liabilities and equity sections appear in a column beside the assets (the account format) or below the assets (the report format).

 EXHIBIT 6.2 Account from Form Balance Sheet

*GORDON, RAEDY, SANNELLA, 2019, INTERMEDIATE ACCOUNTING, 2ND ED., PP. 241-243*

end