Vertical Balance Sheet

What Is Vertical Balance Sheet?

A Vertical Balance Sheet is the representation of a company’s assets, liabilities, and shareholder’s equity in a report format where all the items are listed from top to bottom in a single column. Also, the line of items under each category is shown in the descending order of their liquidity.

Hence, in such a vertical format, the items that take maximum time to liquidate are at the top, and the ones that liquidate quickly are at the bottom. Such presentation of the balance sheet items facilitates their internal comparison between two consecutive accounting periods and external comparison of business performance with that of other organizations within an industry.

• A vertical balance sheet refers to a report format whereby the assets, liabilities, and equity are recorded in a single column, one below the other, in the order of the descending liquidity period of the items in their respective categories.
• The order of vertical format is non-current assets, current assets, non-current liabilities, current liabilities, and shareholders’ equity.
• The horizontal and vertical balance sheets are two different financial statement formats, where the former is generally a four-column report that represents the assets and liabilities line of items side by side, along with their respective amounts.

Vertical Balance Sheet Explained

A vertical balance sheet is a single-column representation of all the assets, liabilities, and equity of an organization. In this accounting format, the balance sheet begins with a listing of assets, then liabilities and shareholders’ equity. Moreover, the recording of all these balance sheet items is done in the decreasing order of their liquidity tenure under their relevant categories. 

Given below are the three vertical balance sheet categories in their respective order:

1. Assets: The asset category has two sub-heads: non-current assets and current assets. The balance sheet begins with the non-current assets having a maturity tenure of more than 1 year, such as fixed assets. It is followed by the current assets that are liquidated within a year, including inventories and cash.
2. Liabilities: The subsequent reporting is of non-current and current liabilities. The non-current liabilities involve long-term obligations, which would be settled after a year. Then comes the current liabilities, which have to be fulfilled within 1 year, such as short-term borrowings and trade payables.
3. Equity: This is the last section of this report format that represents the share capital, retained earnings, and other shareholders’ equity items.

The vertical format often provides a clear and quick overview of the firm’s financial position to the stakeholders, including the investors, shareholders, financiers, creditors, regulatory bodies, etc. It even facilitates immediate comparison between the line of items with similar liquidity or with the accounting records of other similar companies.

Moreover, it fosters transparency and aids in analyzing the current and future liquidity position of the business. However, such a representation is not helpful for trend analysis, as it fails to demonstrate the reports for different accounting periods. Also, it may not be suitable when there is an extensive list of balance sheet items.

Format

The primary vertical balance sheet proforma states the assets first and then the liabilities and equity, while all the items listed are in the descending order of their liquidity position or tenure, as shown below:

Vertical Balance Sheet In The Books Of Company’s Name As on Date
PARTICULARS	NOTE No.	AMOUNT
ASSETS
Non-Current Assets:
Property, Plant & Equipment		XXX
Intangible Assets		XXX
Investments		XXX
Other Non-Current Assets		XXX
		XXX
Current Assets:
Inventories		XXX
Investments		XXX
Trade Receivables		XXX
Cash and Cash Equivalents		XXX
Other Current Assets		XXX
		XXX
Total Assets		XXX
LIABILITIES AND EQUITY
Non-Current Liabilities:
Long-Term Borrowings		XXX
Long-Term Provisions		XXX
Deferred Tax Liabilities (Net)		XXX
Other Non-Current Liabilities		XXX
		XXX
Current Liabilities:
Short-Term Borrowings		XXX
Trade Payables		XXX
Short-Term Provisions		XXX
Other Current Liabilities		XXX
		XXX
Equity:
Share Capital		XXX
Retained Earnings		XXX
Other Equity		XXX
Total Equity		XXX
Total Liabilities and Equity		XXX

However, the companies can modify this report format to include the accounting figures of the previous year in a separate amount column to facilitate the comparison of the company’s financial status over different accounting periods.

Examples

Let us find out the practical representation of assets, liabilities, and equity in this format with the help of the following examples:

Example #1

Suppose the management of a budding firm, ABC Ltd. It is to protect the company’s performance in an investors’ meet where it is seeking a successful funding round. The business is in fair financial health and is majorly funded by the owner’s capital. It has limited external liabilities. Now, in the presentation, if the team uses a horizontal balance sheet, then the investors would find it difficult to compare the current assets with current liabilities. However, if they use a vertical balance sheet, then it becomes easy for the investors to identify at a glance that the company has a solid leverage position and its assets are majorly funded internally.

Example #2

Suppose Company Alpha and Company Beta, both vying for investor attention, approach their annual shareholder meetings with differing balance sheet presentations. Company Alpha employs a horizontal balance sheet format, showcasing a spike in current assets due to increased inventory purchases ahead of an anticipated market demand surge.

However, this is met with a sharp rise in current liabilities, mainly driven by aggressive short-term borrowing to finance the inventory buildup. Meanwhile, Company Beta adopts a vertical balance sheet format, enabling investors to discern a similar surge in current assets but with a more stable current liabilities trend. The vertical layout indicates efficient working capital management and a cautious approach to financing, potentially positioning Company Beta more favorably in investors' eyes.

Difference Between Vertical And Horizontal Balance Sheet

The vertical and horizontal balance sheets are two of the three different types of balance sheets. They differ in the following ways:

Basis	Vertical Balance Sheet	Horizontal Balance Sheet
Definition	It is a report format where the balance sheet items are depicted in a single column beginning with the assets, followed by the liabilities and equity, while recording the items in the order of their decreasing liquidity period.	It demonstrates the assets and liabilities side by side. Thus, it is a four-column representation of assets, liabilities, and equity, where the first two columns are for assets, and their figures, and the other two columns show liabilities and their numbers, respectively.
Format	It has three columns: the first one shows particulars, i.e., the assets, liabilities, and equity; the second one mentions the note no. for each item; and the third one represents their amounts.	It has four columns: the first one represents asset items; the second one depicts the corresponding asset values; the third column is for liabilities; and the fourth one mentions the respective liability amounts.
Represents	An immediate outline of the firm’s financial condition	An organized record of assets and liabilities
Focuses on	Liquidity of assets, liabilities, and equity	Changes in assets, liabilities, and equity over different accounting periods
Use	Facilitates immediate comparison and analysis of the company’s liquidity status and whether its assets are funded from liabilities or equity	It helps in determining the growth or downfall of the company and financial trend analysis over the period; also, it aids in gauging the material errors and accounting irregularities in the books.

Frequently Asked Questions (FAQs)

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This article has been a guide to what is Vertical Balance Sheet. Here, we explain its format, examples, and comparison with horizontal balance sheet. You may also find some useful articles here –

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