The Balance Sheet is a financial statement that lists the assets, liabilities, and the ownership equity of a business entity as of a specific date.
A balance sheet can be presented in many different ways. A classified balance sheet is one format where the accounts are listed in some logical manner such as:
- Assets are listed in order of liquidity with the most liquid to the least liquid form. This is usually classified into groups such as Current Assets and Fixed Assets.
- Liabilities are listed in order of when they are become due. The further subdivision may be Long Term Liabilities and Current Liabilities.
- Equity is generally presented with paid-up capital first and then various reserves and lastly the retained earnings.
The balance sheet could reflects the financial strength of a business. It depends on the type the business. A healthy balance sheet for a merchandiser would probably have a Current Ratio, i.e. Current Assets divided by Current Liabilities of 2 and a Debt Equity ratio of 1:2.