Final answer:
A classified balance sheet is set up in a T-account two-column format listing assets on the left and liabilities and equity on the right, ensuring that total assets equal the sum of liabilities and equity.
Step-by-step explanation:
To prepare a classified balance sheet in good form, it's important to understand that it is typically structured in a two-column format, resembling a 'T-account'. This format divides the page with the vertical line down the middle and a horizontal line under the column headings for "Assets" and "Liabilities". Assets include cash, inventory, property, plant, and equipment, and liabilities include loans, accounts payable, and mortgages.
The balance sheet should be organized with assets listed on the left side and liabilities plus shareholders' equity on the right side. Within assets, they are usually classified as current or long-term, and similarly, liabilities are also classified as either current or long-term. Shareholders' equity, sometimes referred to as bank capital in the context of a bank, represents the owner's claim after subtracting liabilities from assets.
The final step is to ensure that the total assets equal the total liabilities plus shareholders' equity, also known as the accounting equation. If the totals do not match, it indicates an error in the accounting that needs to be resolved before the balance sheet can be considered accurate.