The Balance Sheet Topic includes the following two Subtopics:
- a
Overall
- b
Offsetting.
The balance sheet is commonly referred to as statement of financial position. For purposes of the Codification, both titles are interchangeable.
The Offsetting Subtopic provides guidance about offsetting amounts for certain contracts and repurchase and reverse repurchase agreements.
The Overall Subtopic provides general guidance on the classification of
current assets and
current liabilities and discusses the determination of
working capital.
The balance sheets of most entities show separate classifications of current assets and current liabilities (commonly referred to as classified balance sheets) permitting ready determination of working capital. Financial position, as it is reflected by the records and accounts from which the statement is prepared, is revealed in a presentation of the assets and liabilities of the entity. In the statements of manufacturing, trading, and service entities, these assets and liabilities are generally classified and segregated; if they are classified logically, summations or totals of the current or circulating or working assets (referred to as current assets) and of obligations currently payable (designated as current liabilities) will permit the ready determination of working capital.
The ordinary operations of an entity involve a circulation of capital within the current asset group. Cash is expended for materials, finished parts, operating supplies, labor, and other factory services, and such expenditures are accumulated as inventory cost. Inventory costs, upon sale of the products to which such costs attach, are converted into trade receivables and ultimately into cash again.
In addition to the classification guidance provided in this Subtopic, other Topics in the Codification also address specific classification matters.