Balance sheets that are issued to investors and creditors are almost always classified balance sheets. These balance sheets split the asset and liability accounts into important categories like current assets, noncurrent assets, fixed assets, current liabilities, noncurrent liabilities, and shareholder loans. These classifications are important to investors and creditors because investors and creditors use these classifications to analyze the business performance and improvement over time. Investors and creditors use ratios like the quick ratio and acid test ratio that depend on accurate balance sheet classification.
In a nutshell :
- An unclassified balance sheet does not provide any sub-classifications of assets, liabilities, or equity.
- Instead, this reporting format simply lists all normal line items found in a balance sheet in their order of liquidity, and then presents totals for all assets, liabilities, and equity.
- This approach does not include subtotals for any of the following classifications:
- Current assets
- Long-term assets
- Current liabilities
- Long-term liabilities
- The liabilities are listed in order of term. Short-term liabilities like accounts payable are listed first followed by long-term debt.