When you are completing your company's financial statements, you must make sure your balance sheet format conforms to GAAP standards. GAAP specifies ways to complete your balance sheet. With a little research, you can make sure your balance sheet adheres to the standard.
GAAP Definition
The acronym GAAP stands for generally accepted accounting principles. These principles are the outlined rules, regulations, conventions and practices that are considered the acceptable methods of accounting. GAAP is the standard by which accountants measure their work in the U.S.
Classified
GAAP requires that a balance sheet be classified. A balance sheet is one of a company's financial statements. The balance sheet lists the company's assets, liabilities and equity for a specific point in time (for example, the amounts as of Dec. 31, 2010). For a balance sheet to be classified, the assets and liabilities listed are categorized as either current or non-current. Also, assets are listed first, and the total value of all assets is summarized and labeled at the end of the asset section. Liabilities and equity compose their own section as well. Each is subtotaled, with liabilities listed first. The total liabilities and equity are entered at the bottom of the section. In accordance with the basic accounting equation, the total assets should exactly equal the total liabilities and equity. This means your balance sheet is "in balance."
Assets
Current assets are considered to be those assets easily convertible to cash. A current asset would be an item that could be converted to cash within one year. Some examples of current assets are cash, accounts receivable and prepaid expenses, such as prepaid insurance. Current assets are listed in liquid order. This means the item most easily convertible to cash would be listed first. A non-current asset is any asset not easily convertible to cash. Examples of non-current assets would be machinery and equipment.
Liabilities and Equity
Current liabilities are those liabilities expected to be gone within one year. Examples of current liabilities include accounts payable and tax withholding. All liabilities not expected to be paid off within one year are non-current. Some items considered non-current liabilities are mortgage payable and car loan payable.
Following the liabilities sub-section is the equity sub-section. Equity is not classified as current or non-current. Equity items may include owner's capital or retained earnings, depending on the type of business. The overall total of liabilities and equity should equal your total assets.
