A difference as to order is also found in the placing of deferred charges to operation. Regardless of the scheme of general grouping, one frequently finds the deferred charges placed as the last group. This also seems illogical. Only items of prepaid operating expenses should be included in that group. Such prepayments, while made in the one period, are properly chargeable to the next. Their effect, therefore, is to bring about a saving of the cash and other current assets for other uses during the next period. They are thus nearly related to the current group and could without any serious violation of principle be included thereunder. For the sake of emphasis and a more open showing, they are best shown in a group by themselves immediately following the current assets.
The intangible assets, good-will, franchises, patents, etc., are usually included among the fixed assets. Where so shown they should be given unmistakable titles and are best set up at the end of the group so as not to be covered and lost among the other items. A suggested scheme of grouping which will make an intelligent showing for most purposes follows:
| Assets: | Liabilities: |
| 1. Current Assets | 1. Current Liabilities |
| 2. Deferred Charges to | 2. Deferred Income |
| Operation | 3. Fixed Liabilities |
| 3. Investment of Reserves | |
| 4. Permanent Investments | Net Worth: |
| 5. Fixed Assets | 1. Capital Stock |
| 2. Reserves of Profits | |
| 3. Surplus | |
The content of these groups and any further explanations necessary are treated in the chapters which follow, where the detailed application of principles is discussed.
As stated above, the important desideratum is a like arrangement of groups to facilitate comparison and care to secure the proper content of each group. Within the group itself, while the arrangement of the items is not so important, the principle of degree of liquidity should govern here too. Whatever the order of general arrangement of the groups, the same order may well be observed for the items within the group.
Report and Account Forms
Something should be said with regard to the merits of the two methods of arranging the three main classes of items, i.e., assets, liabilities, and net worth, on the balance sheet. As previously stated, the method known as the report form makes a vertical showing of the classes, while the account form shows the items in parallel columns. The one lists the assets and from their total shows the subtraction of the total liabilities which are in a subjoined list. This difference, representing net worth, is explained in detail as to the portion represented by capital stock, surplus, etc. The account form method lists the assets in one column and the liabilities and net worth in a parallel column, bringing about a balancing of the two columns.
For the report form, it may be said that this method follows the reasoning of the average business man, particularly the man unacquainted with accounts, who subtracts his liabilities from his assets to find how much his present net worth is. The account form rests on the fundamental desire, deep-rooted in the system of double-entry bookkeeping, to show the two sides in balance. It may be looked upon as the technical form and therefore well adapted for publication purposes. It secures also a convenient juxtaposition of groups for purposes of comparison. The one may be regarded as non-technical, easily within the intelligent grasp of the layman; the other as technical and addressed to those trained to read that form of statement. As previously stated, any method of showing which fails to list separately the three distinct classes of assets, liabilities, and net worth is not usually to be justified; a mixture of net worth and liabilities is bad. Omitting detail, the two following type forms meet the conditions laid down above:
| Report Form of Balance Sheet | |||
| Assets | |||
| Current Assets: | |||
| Cash | $........ | ||
| Receivables | ........ | ||
| Stock-in-Trade | ........ | $........ | |
| Deferred Charges to Operation: | |||
| (See Schedules) | ........ | ||
| Investment of Reserves: | |||
| Sinking and Other Funds | |||
| Permanent Investments: | |||
| (Held for purposes of control) | ........ | ||
| Fixed Assets: | |||
| Plant | $........ | ||
| Equipment | ........ | ||
| Good-Will, etc. | ........ | ........ | |
| Total Assets | $........ | ||
| Liabilities | |||
| Current Liabilities: | |||
| Notes Payable | $........ | ||
| Trade Creditors | ........ | ||
| Accrued Expenses | ........ | $........ | |
| Deferred Income: | |||
| (See Schedules) | ........ | ||
| Fixed Liabilities: | |||
| Bonds | $........ | ||
| Long-Term Notes | ........ | ........ | |
| Total Liabilities | ........ | ||
| Net Worth | $........ | ||
| Represented by: | |||
| Capital Stock | $........ | ||
| Reserves of Profits | ........ | ||
| Surplus | ........ | ||
| Total Net Worth | $....... | ||
| Account Form of Balance Sheet | |||||
| Assets | Liabilities and Capital | ||||
| Current Assets: | Current Liabilities: | ||||
| Cash | $.... | Notes Payable | $.... | ||
| Receivables | .... | Trade Creditors | .... | ||
| Stock-in-Trade | .... | $.... | Accrued Expenses | .... | $.... |
| Deferred Charges to Operation: | Deferred Income: | ||||
| (See Schedules) | .... | (See Schedules) | .... | ||
| Investment of Reserves: | Fixed Liabilities: | ||||
| Sinking and Other Funds | .... | Bonds | $.... | ||
| Long-Term Notes | .... | .... | |||
| Total Liabilities | $.... | ||||
| Permanent Investments | .... | ||||
| Fixed Assets: | |||||
| Plant | $.... | Net Worth represented by: | |||
| Equipment | .... | Capital Stock | $.... | ||
| Good-Will, etc. | .... | .... | Reserves of Profit | .... | |
| Surplus | .... | .... | |||
| Total Assets | $.... | Total Liabilities and Capital | $.... | ||