Which statements about balance sheet organization are correct?

• A. The balance sheet groups assets on one side and liabilities plus equity on the other side.
• B. Assets are divided into current and long-term categories.
• C. The balance sheet is only a snapshot of cash balances.
• D. Both statements A and B are correct.

Answer: (D)

Balance sheets are organized to show what the entity owns (assets) and what it owes plus the owners’ claim (liabilities and equity) at a specific date. In many formats, assets appear on one side and liabilities plus equity on the other, which reflects the equation assets = liabilities + equity. Assets are also grouped by liquidity into current assets (expected to be used or converted to cash within a year) and long-term assets. Because these statements both accurately describe how a balance sheet is set up, the best choice is that both statements are correct. The balance sheet is not just a snapshot of cash balances; it presents all assets, all liabilities, and all equity as of the balance sheet date, with cash being only one part of current assets.