Classified balance sheet
from class:
Financial Accounting I
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
- Assets on a classified balance sheet are divided into current and non-current (or long-term) assets.
- Liabilities are categorized similarly into current liabilities and long-term liabilities.
- Current assets typically include cash, accounts receivable, and inventory, while non-current assets may include property, plant, and equipment.
- A key measure derived from a classified balance sheet is the current ratio, calculated as current assets divided by current liabilities.
- 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?
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