Types of balance sheets
/The balance sheet is part of the financial statements issued by a business, informing the reader of the amounts of assets, liabilities, and equity held by the entity as of the balance sheet date. There are several balance sheet formats available. The more common are the classified, common size, comparative, horizontal, and vertical balance sheets. They are explained below.
Classified Balance Sheet
The classified balance sheet format presents information about an entity's assets, liabilities, and shareholders' equity that is aggregated (or "classified") into subcategories of accounts. It is the most common type of balance sheet presentation, and does a good job of consolidating a large number of individual accounts into a format that is eminently readable. Accountants should present balance sheet information in the same classification structure over multiple periods, to make the information in the periods more comparable.
Common Size Balance Sheet
The common size balance sheet format presents not only the standard information contained in a balance sheet, but also a column that notes the same information as a percentage of the total assets (for asset line items) or as a percentage of total liabilities and shareholders' equity (for liability or shareholders' equity line items). It is useful for constructing trend lines to examine the relative changes in the size of different accounts. A sample common size balance sheet appears in the following exhibit.
Comparative Balance Sheet
The comparative balance sheet format presents side-by-side information about an entity's assets, liabilities, and shareholders' equity as of multiple points in time. For example, a comparative balance sheet could present the balance sheet as of the end of each year for the past three years. It is useful for highlighting changes over time. This approach is especially fine for analyzing changes in the liquidity level of an organization over an extended period of time, which is useful for lenders and creditors.
Horizontal Balance Sheet
The horizontal balance sheet presents assets on the left side of the page, and liabilities and equity on the right side. This is a useful presentation format when there are many line items, and you are trying to keep all of the information on a single page. The main problem with this format is that it is difficult to present ending balances for a number of reporting periods; usually, only the ending balances for one period can be included.
Vertical Balance Sheet
The vertical balance sheet format is one in which the balance sheet presentation format is a single column of numbers, beginning with asset line items, followed by liability line items, and ending with shareholders' equity line items. Within each of these categories, line items are presented in decreasing order of liquidity. This is the most common default presentation format used by most accounting software packages.
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