Select the most appropriate style of balance sheet for your organization.
A balance sheet provides a snapshot of a business's financial condition at a specific point in time. It reveals a company's assets, liabilities and owners' equity, providing valuable information for investors, company management, suppliers, competitors, government agencies and potential lenders. A balance sheet must follow the formula, "Assets = Liabilities + Owners' Equity."
Account Form
In the account form of the balance sheet, assets appear on the left and liabilities and owners' equity appear on the right. Following generally accepted accounting principles, assets are listed in order of liquidity. Usually, cash comes first, followed by current assets -- accounts and notes receivable -- and fixed assets such as land, building and equipment. On the right-hand side, current liabilities -- accounts and notes payable -- are listed first, followed by long-term liabilities such mortgage payable. The owners' equity, which consists of the initial investment, common stock and retained earnings, follows the liabilities' section.
Report Form
In the report form of the balance sheet, assets appear first followed by liabilities and owners' equity. This form follows order of liquidity, listing current assets before fixed assets and current liabilities before long-term liabilities.
Classified Balance Sheet
A classified balance sheet presents accounts in distinct groupings or categories. For example, the sheet can classify assets as current, long-term investments, property, plant and equipment, and intangible assets. Liabilities can be classified as current liabilities and long-term debt. The owners' equity section includes invested capital, beginning and current retained earnings. Readers typically find this format very useful.
Common-Size Balance Sheet
A common-size balance sheet restates each dollar amount on the balance sheet as a percentage of a common base figure. It divides each asset by the total asset amount, each liability by the total liability amount, and each item in owners' equity by the total owners' equity amount. The final totals of each section equal 100 percent. When analyzing this balance sheet, company executives can quickly compare their percentages to the industry's average percentages. For example, a company with inventory at 8 percent of total assets can check if this percentage compares favorably with industry statistics. Outsiders -- banks, potential investors, creditors -- can compare two companies within the same industry without knowing actual dollar amounts.
Projected Balance Sheet
Preparing a projected balance sheet presents challenges, with an inaccurate result. Instead, the projected balance sheet provides a detailed plan of the company's future regarding allocation of resources, financing and operations. Using the most recent balance sheet, an accountant or executive will examine each item and predict the probable effects on the dollar amount. A projected balance sheet provides investors, lenders and other readers with valuable information regarding the future direction of the organization. It can answer many questions, including how the company will finance the projected equipment upgrades and deal with a significant increase or decrease in sales.
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