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Classified Balance Sheet Vs. Unclassified Balance Sheet - Which is Better for Business Valuation
Classified Balance Sheet Vs. Unclassified Balance Sheet - Which is Better for Business Valuation Business Valuation Team

Classified Balance Sheet Vs. Unclassified Balance Sheet - Which is Better for Business Valuation

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Classified Balance Sheet Vs. Unclassified Balance Sheet - Which is Better for Business Valuation? Let's discuss

This article will discuss the differences between classified and unclassified balance sheets and see which is better for valuing companies.

What is A Balance Sheet?

The term balance sheet is a financial statement that reports a company's assets, liabilities, and shareholder equity at a specific period.

 

What is An Unclassified Balance Sheet?

An unclassified balance sheet lists all assets in order of liquidity, starting with assets like cash and accounts receivable. The liabilities are listed in order of terms. Short-term liabilities like accounts payable are listed first, followed by long-term debt.

What is A Classified Balance Sheet?

A classified balance sheet displays the same asset, liability, and equity totals as its unclassified counterpart. Still, it does so with greater detail, classifying them into different classes rather than simply documenting them in the traditional balance sheet format.

 

What should be listed first on a classified balance sheet?

In the classified balance sheet, the most liquid assets go first, and the minor liquid assets go last. Liabilities are categorized in the order of the due date. Liabilities that are due within one year, usually called current liabilities, are listed first, and long-term liabilities, due in over one year, are listed last.

 

Example of Unclassified Balance Sheet

Assets

 

Cash

276,000

Accounts Receivable

69,000

Equipment & Furniture

165,600

Total Assets

510,600

Liabilities

 

Accounts Payable

33,120

Short-Term Loans

20,700

Other Liabilities

13,800

Note Payable

96,600

Total Liabilities

164,220

Equity

 

Capital

276,000

Retained Earnings

70,380

Total Equity

346,380

Total Liabilities and Equity

510,600

 

 

Example of Classified Balance Sheet

Assets

 

Current Assets

 

Cash

       276,000

Accounts Receivable

         69,000

Total Current Assets

       345,000

Fixed Assets

 

Equipment

       138,000

Furniture

         27,600

Total Fixed Assets

       165,600

Total Assets

       510,600

Liabilities and Equity

 

Current Liabilities

 

Accounts Payable

         33,120

Short-Term Loans

         20,700

Other Liabilities

         13,800

Total Current Liabilities

         67,620

Long-term liabilities

 

Note Payable

         96,600

Total Long Term Liabilities

         96,600

Total Liabilities

       164,220

Shareholder's Equity

 

Capital

       276,000

Retained Earnings

         70,380

Total Equity

       346,380

Total Liabilities and Shareholder's Equity

       510,600

 

Which is Better for Business Valuation?

After we understood the difference between a classified balance sheet and a non-classified balance sheet, the question arises, which one is more helpful in valuing companies? The answer is the classified balance sheet. 

When it comes to valuation using the cash flow discounting method - it is essential to know the details of various items - such as inventory, shareholder loans, etc. These sections require the use of a classified balance sheet.

When we perform a valuation using the property value method - the various items in the balance sheet must be adjusted to their market values. In this case, you must know the value of the various sections, which can be vied on the classified balance sheet.

 

 

 

If you are looking for a quick and reliable way to test the value of a company - you are welcome to use Equitest - an AI Business Valuation Software. Start for Free by clicking here.

Last modified on Friday, 02 December 2022 10:48

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