Question & Answer: Provide an example of the main classifications used in the Balance Sheet: What specific line i…..

Provide an example of the main classifications used in the Balance Sheet: What specific line items fall under those classifications? Why would those classifications be important to users like creditors, investors, etc?

Expert Answer

 

Provide an example of the main classifications used in the Balance Sheet: What specific line items fall under those classifications? Why would those classifications be important to users like creditors, investors, etc?

The Main Classifications & Sub-classifications used in the Balance Sheet are as follows:-

Sl.No. MAIN CLASSIFICATION SUB CLASSIFICATION
Equity & Liabilities
1. Shareholders Funds (a). Share Capital
(b). Reserves & Surplus
(c). Money received against Share Warrants
2. Share Application money Pending Allotment
3. Non-Current Liabilities (a). Long Term Borrowings
(b). Deferred Tax Liabilities (Net)
(c). Other Long Term Liabilities
(d). Long Term Provisions
4. Current Liabilities (a). Short Term Borrowings
(b). Trade Payables
(c). Other Current Liabilities
(d). Short Term Provisions
Assets
5. Non-Current Assets
(i). Fixed Assets (a). Tangible Assets
(b). Intangible Assets
(c). Capital Work-in-progess
(d). Intangible Assets under development
(ii). Non-Current Investmemts
(iii). Deferred Tax Assets (Net)
(iv). Long Terms Loans & Advances
(v). Other Non-Current Assets
6. Current Assets
(i). Current Investments
(ii). Inventories
(iii). Trade Receivables
(iv). Cash & Cash Equivalents
(v). Short Terms Loans & Advances
(vi). Other Current Assets

 

Reasons as to why these classifications is important to users such as Creditors , Investors etc:-

1. As we all know that Balance Sheets showcases the Financial Position of the Business Enterprise. Creditors & Stock Investors uses the Balance Sheet in order to determine a company current financial position because it showcases the list what the company owns with them and what it owes to the creditors as on a particular date.

2. Normally, Investors would be attracted only when there is huge cash balance in the Balance Sheet. Because, cash is the only thing which can protect in case of any difficulty or worst times and it also gives company more options for future growth. Cash would also be there in case the management of the company has not made any investments or it is too-short sighted as what to be done with the money available.

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