Question

List the components of a classified balance sheet in the proper order in accordance with GAAP.

Answer 1

A classified balance sheet, presented in a T-account format, lists a company's assets, liabilities, and equity in a specific order consistent with GAAP. Starting with current assets and ending with shareholder's equity or owner's equity, it includes categories like long-term investments, property, plant and equipment, intangibles, and other assets, followed by current and long-term liabilities.

Step-by-step explanation:

Components of a Classified Balance Sheet

When preparing a classified balance sheet in accordance with GAAP (Generally Accepted Accounting Principles), the components should be listed in a specific order. The balance sheet, often referred to as a T-account due to its two-column format, includes a vertical line down the middle and a horizontal line under the column headings for "Assets" and "Liabilities". A bank's balance sheet not only reflects the institution's financial positioning but also provides detailed information regarding its assets, liabilities, and bank capital, which equates to the bank's net worth. Here's the proper order for the components of a classified balance sheet:

1. Current Assets: These include cash and other assets that are expected to be converted to cash or consumed within one year or one operating cycle, whichever is longer. Examples are cash, marketable securities, accounts receivable, inventory, and prepaid expenses.
2. Long-term Investments: Investments that are not expected to be sold within a year such as bonds, stocks, and long-term notes receivable.
3. Property, Plant, and Equipment: These are tangible assets used in the operation of the company that are not intended for resale. They are typically reported net of accumulated depreciation.
4. Intangible Assets: Non-physical assets like patents, trademarks, and goodwill.
5. Other Assets: Long-term assets not fitting into the above categories.
6. Current Liabilities: Short-term obligations due within one year or one operating cycle, such as accounts payable, short-term debt, and current portions of long-term debt.
7. Long-term Liabilities: Obligations not due within the next year such as bonds payable, long-term lease obligations, and pension liabilities.
8. Equity: Also known as shareholders' equity or owner's equity for corporations and sole proprietorships respectively. It includes common stock, retained earnings, and additional paid-in capital.