Classification of Assets and Liabilities in a Balance Sheet
Classification of Assets and Liabilities in a Balance Sheet
We all know that Balance sheet tells us the financial position of a business at a particular point of time. The accounting equation i.e. Assets = Liabilities + Capital forms lays the foundation for the preparation of Balance Sheet.
Everything that the business owns are its assets. Alternatively, whatever amounts a business owes to outsiders become its liabilities.
First let us see how these assets are to be classified.
Current Assets:
Current Assets are assets whose benefits are expected to accrue within one year of the Balance sheet. Typical Current Assets include:
• Inventory
• Supplies
• Temporary Investments
• Accounts Receivable
• Prepaid Insurance
• Cash
• Petty Cash
Investments:
These assets appear immediately below Current Assets and are less liquid than the Current Assets. Items in this category would include:
• Life Insurance Policies
• Long Time Investments
• Treasury Bills
• Notes Receivables
Fixed Assets:
These are the properties held by the business and are used primarily for manufacturing goods. Fixed Assets include:
• Land
• Plant and Machinery
• Factory Building
• Delivery Trucks
• Automobiles
• Furniture and Fixtures
Intangible Assets:
These are the assets which cannot be seen, yet make a difference in the way income is generated or profits are earned. Examples include:
• Goodwill
• Patents
• Copyrights
• Licenses
Other Assets:
All the other assets not falling within these categories would be “Other Assets”
Classification of Liabilities:
Liabilities can be classified as:
Current Liabilities:
Obligations that are due within one year of their occurring or within one year of the balance sheet date is called a current liability(In case of a company's operating cycle extending beyond one year, an item is a current liability if becomes is due within the operating cycle.)
Another condition is that this liability would use
We all know that Balance sheet tells us the financial position of a business at a particular point of time. The accounting equation i.e. Assets = Liabilities + Capital forms lays the foundation for the preparation of Balance Sheet.
Everything that the business owns are its assets. Alternatively, whatever amounts a business owes to outsiders become its liabilities.
First let us see how these assets are to be classified.
Current Assets:
Current Assets are assets whose benefits are expected to accrue within one year of the Balance sheet. Typical Current Assets include:
• Inventory
• Supplies
• Temporary Investments
• Accounts Receivable
• Prepaid Insurance
• Cash
• Petty Cash
Investments:
These assets appear immediately below Current Assets and are less liquid than the Current Assets. Items in this category would include:
• Life Insurance Policies
• Long Time Investments
• Treasury Bills
• Notes Receivables
Fixed Assets:
These are the properties held by the business and are used primarily for manufacturing goods. Fixed Assets include:
• Land
• Plant and Machinery
• Factory Building
• Delivery Trucks
• Automobiles
• Furniture and Fixtures
Intangible Assets:
These are the assets which cannot be seen, yet make a difference in the way income is generated or profits are earned. Examples include:
• Goodwill
• Patents
• Copyrights
• Licenses
Other Assets:
All the other assets not falling within these categories would be “Other Assets”
Classification of Liabilities:
Liabilities can be classified as:
Current Liabilities:
Obligations that are due within one year of their occurring or within one year of the balance sheet date is called a current liability(In case of a company's operating cycle extending beyond one year, an item is a current liability if becomes is due within the operating cycle.)
Another condition is that this liability would use