2.3 The Classified Balance Sheet
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2.3 THE CLASSIFIED BALANCE SHEET
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Transcript of 2.3 The Classified Balance Sheet
2.3
THE CLASSIFIED
BALANCE SHEET
Video of this presentation at…
YouTube Channel for VCE Accounting
© Michael Allison. Author’s permission required for external use.
A business had the following Balance Sheet…
Balance Sheet
Assets Liabilities
Cash 30,000 Accounts payable 20,000
Accounts receivable 45,000 Tax debts 10,000
Inventory 25,000 Loans 45,000
Property 100,000 Owner’s Equity
Display equipment 15,000 Capital 140,000
TOTAL 215,000 TOTAL 215,000
• Which Liabilities must be
repaid first?
• Which Assets will become
cash soon?
• Will some Assets be owned
for many years? E.g.
property
• Has the business got
enough money to pay its
Liabilities?
• This month?
• This year?
• In 10 years?
This Balance Sheet
doesn’t tell us any of this
information
2.3 THE CLASSIFIED BALANCE SHEET
© Michael Allison. Author’s permission required for external use.
Rather than appearing as one big group, each item in the Balance Sheet must
be classif ied
Assets are classified into:
• Current Assets: assets that will be turned into
cash or used within the next 12 months, e.g.
• Cash
• Inventory (stock)
• Accounts receivable (debtors )
• Non-Current Assets: assets that the business
will own beyond the next 12 months, e.g.
• Property
• Vehicles
• IT
Liabilities are classified into:
• Current Liabilities: debts that must be repaid
within the next 12 months, e.g.
• Bills and expenses (e.g. phone, power)
• Short-term loans
• Accounts payable (creditors)
• Tax bills
• Non-Current Liabilities: debts that will be
repaid after the next 12 months, e.g.
• Long-term loans
• Mortgages
2.3 THE CLASSIFIED BALANCE SHEET
© Michael Allison. Author’s permission required for external use.
Who would you rather be?
Business A
LiabilitiesAssets
Current
Non-Current
Total $100,000
$50,000
$50,000
$70,000
$10,000
$60,000
Business B
LiabilitiesAssets
$100,000
$80,000
$20,000
$70,000
$60,000
$10,000
2.3 THE CLASSIFIED BALANCE SHEET
© Michael Allison. Author’s permission required for external use.
Harry’s Hats: Balance Sheet as at 4 January 2015
Assets Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Loan – due 10 years 20,000
Property 100,000 Mortgage 50,000
Accounts receivable 5,000 Accounts payable 15,000
Vehicle 15,000 Owner’s Equity
Capital 60,000
TOTAL 150,000 TOTAL 150,000
Current Non-Current
Harry’s Hats: Balance Sheet as at 4 January 2015
Assets Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Loan – due 10 years 20,000
Property 100,000 Mortgage 50,000
Accounts receivable 5,000 Accounts payable 15,000
Vehicle 15,000 Owner’s Equity
Capital 60,000
TOTAL 150,000 TOTAL 150,000
Cash
Harry’s Hats: Balance Sheet as at 4 January 2015
Assets Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Loan – due 10 years 20,000
Property 100,000 Mortgage 50,000
Accounts receivable 5,000 Accounts payable 15,000
Vehicle 15,000 Owner’s Equity
Capital 60,000
TOTAL 150,000 TOTAL 150,000
Inventory
Harry’s Hats: Balance Sheet as at 4 January 2015
Assets Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Loan – due 10 years 20,000
Property 100,000 Mortgage 50,000
Accounts receivable 5,000 Accounts payable 15,000
Vehicle 15,000 Owner’s Equity
Capital 60,000
TOTAL 150,000 TOTAL 150,000
Property
Harry’s Hats: Balance Sheet as at 4 January 2015
Assets Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Loan – due 10 years 20,000
Property 100,000 Mortgage 50,000
Accounts receivable 5,000 Accounts payable 15,000
Vehicle 15,000 Owner’s Equity
Capital 60,000
TOTAL 150,000 TOTAL 150,000
Accounts
receivable
Harry’s Hats: Balance Sheet as at 4 January 2015
Assets Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Loan – due 10 years 20,000
Property 100,000 Mortgage 50,000
Accounts receivable 5,000 Accounts payable 15,000
Vehicle 15,000 Owner’s Equity
Capital 60,000
TOTAL 150,000 TOTAL 150,000
Vehicle
Harry’s Hats: Balance Sheet as at 4 January 2015
Assets Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Loan – due 10 years 20,000
Property 100,000 Mortgage 50,000
Accounts receivable 5,000 Accounts payable 15,000
Vehicle 15,000 Owner’s Equity
Capital 60,000
TOTAL 150,000 TOTAL 150,000
Loan – due 180
days
Harry’s Hats: Balance Sheet as at 4 January 2015
Assets Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Loan – due 10 years 20,000
Property 100,000 Mortgage 50,000
Accounts receivable 5,000 Accounts payable 15,000
Vehicle 15,000 Owner’s Equity
Capital 60,000
TOTAL 150,000 TOTAL 150,000
Loan – due 10
years
Harry’s Hats: Balance Sheet as at 4 January 2015
Assets Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Loan – due 10 years 20,000
Property 100,000 Mortgage 50,000
Accounts receivable 5,000 Accounts payable 15,000
Vehicle 15,000 Owner’s Equity
Capital 60,000
TOTAL 150,000 TOTAL 150,000
Mortgage
Harry’s Hats: Balance Sheet as at 4 January 2015
Assets Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Loan – due 10 years 20,000
Property 100,000 Mortgage 50,000
Accounts receivable 5,000 Accounts payable 15,000
Vehicle 15,000 Owner’s Equity
Capital 60,000
TOTAL 150,000 TOTAL 150,000
Accounts payable
2.3 THE CLASSIFIED BALANCE SHEET
© Michael Allison. Author’s permission required for external use.
Harry’s Hats: Balance Sheet as at 4 January 2015
Current Assets Current Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Accounts payable 15,000 15,000
Accounts receivable 5,000 35,000
Non-Current Liabilities
Loan – due 10 years 20,000
Mortgage 50,000 70,000
Non-Current Assets
Property 100,000 Owner’s Equity
Vehicle 15,000 115,000 Capital 60,000
TOTAL 150,000 TOTAL 150,000
Harry’s Hats: Balance Sheet as at 4 January 2015
Current Assets Current Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Accounts payable 15,000 15,000
Accounts receivable 5,000 35,000
Non-Current Liabilities
Loan – due 10 years 20,000
Mortgage 50,000 70,000
Non-Current Assets
Property 100,000 Owner’s Equity
Vehicle 15,000 115,000 Capital 60,000
TOTAL 150,000 TOTAL 150,000
Harry’s Hats: Balance Sheet as at 4 January 2015
Current Assets Current Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Accounts payable 15,000 15,000
Accounts receivable 5,000 35,000
Non-Current Liabilities
Loan – due 10 years 20,000
Mortgage 50,000 70,000
Non-Current Assets
Property 100,000 Owner’s Equity
Vehicle 15,000 115,000 Capital 60,000
TOTAL 150,000 TOTAL 150,000
Harry’s Hats: Balance Sheet as at 4 January 2015
Current Assets Current Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Accounts payable 15,000 15,000
Accounts receivable 5,000 35,000
Non-Current Liabilities
Loan – due 10 years 20,000
Mortgage 50,000 70,000
Non-Current Assets
Property 100,000 Owner’s Equity
Vehicle 15,000 115,000 Capital 60,000
TOTAL 150,000 TOTAL 150,000
Harry’s Hats: Balance Sheet as at 4 January 2015
Current Assets Current Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Accounts payable 15,000 15,000
Accounts receivable 5,000 35,000
Non-Current Liabilities
Loan – due 10 years 20,000
Mortgage 50,000 70,000
Non-Current Assets
Property 100,000 Owner’s Equity
Vehicle 15,000 115,000 Capital 60,000
TOTAL 150,000 TOTAL 150,000
Harry’s Hats: Balance Sheet as at 4 January 2015
Current Assets Current Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Accounts payable 15,000 15,000
Accounts receivable 5,000 35,000
Non-Current Liabilities
Loan – due 10 years 20,000
Mortgage 50,000 70,000
Non-Current Assets
Property 100,000 Owner’s Equity
Vehicle 15,000 115,000 Capital 60,000
TOTAL 150,000 TOTAL 150,000
Harry’s Hats: Balance Sheet as at 4 January 2015
Current Assets Current Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Accounts payable 15,000 15,000
Accounts receivable 5,000 35,000
Non-Current Liabilities
Loan – due 10 years 20,000
Mortgage 50,000 70,000
Non-Current Assets
Property 100,000 Owner’s Equity
Vehicle 15,000 115,000 Capital 60,000
TOTAL 150,000 TOTAL 150,000
Harry’s Hats: Balance Sheet as at 4 January 2015
Current Assets Current Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Accounts payable 15,000 20,000
Accounts receivable 5,000 35,000
Non-Current Liabilities
Loan – due 10 years 20,000
Mortgage 50,000 70,000
Non-Current Assets
Property 100,000 Owner’s Equity
Vehicle 15,000 115,000 Capital 60,000
TOTAL 150,000 TOTAL 150,000
Harry’s Hats: Balance Sheet as at 4 January 2015
Current Assets Current Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Accounts payable 15,000 20,000
Accounts receivable 5,000 35,000
Non-Current Liabilities
Loan – due 10 years 20,000
Mortgage 50,000 70,000
Non-Current Assets
Property 100,000 Owner’s Equity
Vehicle 15,000 115,000 Capital 60,000
TOTAL 150,000 TOTAL 150,000
Harry’s Hats: Balance Sheet as at 4 January 2015
Current Assets Current Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Accounts payable 15,000 20,000
Accounts receivable 5,000 35,000
Non-Current Liabilities
Loan – due 10 years 20,000
Mortgage 50,000 70,000
Non-Current Assets
Property 100,000 Owner’s Equity
Vehicle 15,000 115,000 Capital 60,000
TOTAL 150,000 TOTAL 150,000
Harry’s Hats: Balance Sheet as at 4 January 2015
Current Assets Current Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Accounts payable 15,000 20,000
Accounts receivable 5,000 35,000
Non-Current Liabilities
Loan – due 10 years 20,000
Mortgage 50,000 70,000
Non-Current Assets
Property 100,000 Owner’s Equity
Vehicle 15,000 115,000 Capital 60,000
TOTAL 150,000 TOTAL 150,000
Harry’s Hats: Balance Sheet as at 4 January 2015
Current Assets Current Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Accounts payable 15,000 20,000
Accounts receivable 5,000 35,000
Non-Current Liabilities
Loan – due 10 years 20,000
Mortgage 50,000 70,000
Non-Current Assets
Property 100,000 Owner’s Equity
Vehicle 15,000 115,000 Capital 60,000
TOTAL 150,000 TOTAL 150,000
2.3 THE CLASSIFIED BALANCE SHEET
© Michael Allison. Author’s permission required for external use.
2.3 THE CLASSIFIED BALANCE SHEET
Harry’s Hats: Balance Sheet as at 4 January 2015
Current Assets Current Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Accounts payable 15,000 20,000
Accounts receivable 5,000 35,000
Non-Current Liabilities
Loan – due 10 years 20,000
Mortgage 50,000 70,000
Non-Current Assets
Property 100,000 Owner’s Equity
Vehicle 15,000 115,000 Capital 60,000
TOTAL 150,000 TOTAL 150,000
• Which Liabilities
must be repaid first?
• Which Assets will
become cash soon?
• Will some Assets be
owned for many
years? E.g. property
• Has the business got
enough money to pay
its Liabilities?
• This month?
• This year?
• In 10 years?
© Michael Allison. Author’s permission required for external use.
Classifying the Balance Sheet fulfi ls the Qualitative Characteristic of
Relevance…
2.3 THE CLASSIFIED BALANCE SHEET
Business A
LA
Current
Non-
Current
Total $100,000
$50,000
$50,000
$70,000
$10,000
$60,000
DefineInformation is relevant if it influences
the decision-making of the business.
Relate Having the classified information
enables the firm to make decisions
such as:
• How will we finance our Current
Liabilities?
• Should we sell some of our Non-
Current Assets?
• Should the owner provide a capital
contribution?
• Etc.
© Michael Allison. Author’s permission required for external use.
• The owner intends to
sell the delivery van
within the next 6
months.
• Should the firm
classify the van as a
Current Asset?
2.3 THE CLASSIFIED BALANCE SHEET
Harry’s Hats: Balance Sheet as at 4 January 2015
Current Assets Current Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Accounts payable 15,000 20,000
Accounts receivable 5,000 35,000
Non-Current Liabilities
Loan – due 10 years 20,000
Mortgage 50,000 70,000
Non-Current Assets
Property 100,000 Owner’s Equity
Vehicle 15,000 115,000 Capital 60,000
TOTAL 150,000 TOTAL 150,000
Harry’s Hats: Balance Sheet as at 4 January 2015
Current Assets Current Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Accounts payable 15,000 20,000
Accounts receivable 5,000 35,000
Non-Current Liabilities
Loan – due 10 years 20,000
Mortgage 50,000 70,000
Non-Current Assets
Property 100,000 Owner’s Equity
Vehicle 15,000 115,000 Capital 60,000
TOTAL 150,000 TOTAL 150,000
Harry’s Hats: Balance Sheet as at 4 January 2015
Current Assets Current Liabilities
Cash 10,000 Loan – due 180 days 5,000
Inventory 20,000 Accounts payable 15,000 20,000
Accounts receivable 5,000
Vehicle 15,000 50,000 Non-Current Liabilities
Loan – due 10 years 20,000
Mortgage 50,000 70,000
Non-Current Assets
Property 100,000 100,000 Owner’s Equity
Capital 60,000
TOTAL 150,000 TOTAL 150,000
NODo not re-classify
the van because
you intend to sell it
soon
© Michael Allison. Author’s permission required for external use.
The fol lowing Assets wil l always be classified as Non-Current Assets
regardless of when the firm intends to sel l them…
Non-Current Assets
• Premises
• Vehicles
• Machinery
• Equipment
• Office equipment
• Computers
• Furniture
Non-Current Assets
• Premises
Non-Current Assets
• Premises
• Vehicles
Non-Current Assets
• Premises
• Vehicles
• Machinery
Non-Current Assets
• Premises
• Vehicles
• Machinery
• Equipment
Non-Current Assets
• Premises
• Vehicles
• Machinery
• Equipment
• Office equipment
Non-Current Assets
• Premises
• Vehicles
• Machinery
• Equipment
• Office equipment
• Computers
Non-Current Assets
• Premises
• Vehicles
• Machinery
• Equipment
• Office equipment
• Computers
• Furniture
This is because the Going Concern Principle
assumes the l i fe of the business is infinite
and wil l last forever
It is assumed that these Assets wil l be held
for longer than the next 12 months …
Today
2.3 THE CLASSIFIED BALANCE SHEET
© Michael Allison. Author’s permission required for external use.
TASK
In-class Homework
SQ7 X
SQ8 X
SQ10 X
Ex2.1 X
SQ9 X
