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

02 December 2022 | Published in Business Valuation Methods. Read 1506 times.

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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.

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Last modified on Friday, 02 December 2022 10:48