Financial Accounting: In an Economic Context

THE CLASSIFIED BALANCE SHEET

We now turn to more in-depth discussions of the four financial statements. Figure 2-2 shows the balance sheet for Harbour Island Company as of December 31, 2011. It is entitled a classified balance sheet because the asset and liability accounts are grouped into classifications: current assets; long-term investments; property, plant, and equipment; intangible assets; current liabilities; and long-term liabilities.

A Photograph of Financial Condition

Think of the balance sheet as a photograph of the business at a specific point in time. The title includes a specific date (December 31, 2011). As of this date, the balance sheet measures the financial condition of Harbour Island Company. In fact, some companies refer to the balance sheet as the statement of financial condition. This “photograph” of financial condition shows that as of December 31, 2011, Harbour Island has $220 in cash, total assets of $18,615, contributed capital of $9,550, retained earnings of $1,385, and total liabilities plus shareholders' equity of $18,615.

The balance sheet lists Harbour Island's assets and their sources as of December 31, 2011. The company's total assets (valued at $18,615) came from three separate sources: (1) $7,680 (41 percent) came from various forms of borrowing (total liabilities) and must be repaid in the future; (2) $9,550 (51 percent) was received when the company sold (issued) stock to the shareholders (contributed capital); and (3) $1,385 (8 percent), the ...