Understanding the Vertical
Balance Sheet Format

Principal Components

• Assets: First, current assets are placed, followed by non-current assets.

• Liabilities: It forms immediately after the assets section and then divided into two sections: current liabilities and non-current liabilities.

• Shareholders' Equity: Share capital, reserve, and all the other equity-related entries come under this section.

All these elements thus come together in the vertical balance sheet format in such a way that they provide for a straightforward comparison of assets and liabilities over a single period of time which is, in turn, suitable for determining business liquidity.

Vertical Balance Sheet Format Example

This example gives a simple version of the vertical structure of a balance sheet as given below:

This format allows the company's financial position to be analyzed over a short period of time.

Benefits of Applying the Vertical Balance Sheet Format

• Accounting Error Eradication: In the vertical format, especially when used in combination with cloud accounting software, the likelihood of human error is relatively minimal. Automated systems like Billing Software use real-time calculations to give accurate information.
• Increases Efficiency: With software solutions, you may easily generate the vertical balance sheet in PDF, Excel, or Word. This simplifies preparation, sharing, and distributed collaboration across devices.
• Easy Management: It helps to make easy bookkeeping through better comparisons of financial information and enables businesses to review their quick financial state.
• Automation Capability: This is the ability of automatically reducing the number of repetitive works when generating invoices and recording transactions through connection of business accounts to automation systems. Thus, this reduces the repetitive work enabling much spare time for other important business tasks.

Vertical and Horizontal Balance Sheets

Horizontal Balance Sheets	Vertical Balance Sheets
Data in a horizontal balance sheet is presented in two columns, where the left column presents the assets and the right column presents the liabilities/equity. While useful for this format makes it difficult to compare different time periods	However, it is straightforward with the vertical balance sheet as data is presented in one column and previous and current figures can be quite easily compared. Such comparison is very useful in monitoring a company's liquidity as well as performance over time.

Why is a Vertical Balance Sheet Important?

A vertical balance sheet is important in the sense that it allows for critical comparisons to be made. For instance, one can know whether their short-term obligations will be covered by comparing current assets and current liabilities. Due to the very nature of ease and clarity, this format is favored by many investors and accountants.

How to Create a Vertical Balance Sheet

To create a vertical balance sheet, a step-by-step approach follows:

1. Asset Identification and Categorization (Current vs Non-Current) Assets

● Assets of your business which have a value, be it in cash, property or equipment

● Assets come under two categories:

● Current Assets: These are the assets which can be liquidated in one year. These include,

• Cash in hand/cash in bank.
• Accounts receivable-the money owed by the customers.
• Inventory the products or materials that will sell.

● Non-Current Assets : These are long-term assets including,

• Buildings, land or equipment.
• Long-term investments

2. Calculating Total Assets

• Add up the values of all your current and non-current assets to get the Total Assets.

• Total Assets = Current Assets + Non-Current Assets.

• This is the total value of everything the business owns.

3. Noting and Classifying Liabilities (Current and Non-Current)

● Liabilities are amounts your business owes to other people, such as loans or bills

● Liabilities are also classified under :

● Current Liabilities: Those are the debts payable within one year. Examples include:

• Accounts payable refers to the dollar amount you owe to suppliers.
• Short-term loans or credit card balances

● Non-Current Liabilities: These refer to long-term debts. Examples include;

• Long term loans. The payable period is after more than one year.
• Mortgages or bonds payable.

4. Determine Total Liabilities

● Sum up all your current and non-current liabilities to arrive at the Total Liabilities.

● Total Liabilities = Current Liabilities + Non-Current Liabilities.

● This provides the total amount your business owes.

5. Account for Equity Components

● Equity is the owners' contribution to the business, plus all the retained profits in the business not paid out

● Significant components of equity will include:

• Owner's capital or investments: That is, the amount of money owners ploughed into the business.
• Retained earnings: That is, the retained profit in the business.

6. Calculate Total Equity

● That is obtained by adding up all the equity components.

● Total Equity = Owner's Capital + Retained Earnings.

● This is the amount the owners really own after paying off all liabilities.

7. Organize in Vertical Format

● In vertical format, you write down every asset on top (one below the other).

● Next, you write down every liability and equity below.

● It has the following format:

• Assets on one side.
• Liabilities and Equity together on the other side.
• Balances Both sides, which means Total Assets = Total Liabilities + Equity .

● The total for both assets and liabilities plus equity appears at the bottom.

This is called a "balance sheet" because it shows the sum total of what the business owns (or has) balances out to what it owes, plus what the owners have invested.