Vertical balance sheet definition
/What is a Vertical Balance Sheet?
A vertical balance sheet is one in which the balance sheet presentation format is a single column of numbers, beginning with asset line items, followed by liability line items, and ending with shareholders' equity line items. Within each of these categories, line items are presented in decreasing order of liquidity. Thus, the presentation within the topmost block of line items (for assets) begins with cash and usually ends with fixed assets (which are much less liquid than cash) or goodwill. Similarly, the liabilities section begins with accounts payable and usually ends with long-term debt, for the same reason.
Why Use a Vertical Balance Sheet?
The intent of a vertical balance sheet is for the reader to make comparisons between the numbers on the balance sheet for a single period. For example, someone might compare the current assets total to the current liabilities total to estimate the liquidity of a business as of the balance sheet date. It is also an ideal format for presenting the balance sheets for a number of periods in a side-by-side format. This multi-period presentation is useful for comparing data across periods and spotting actionable trends.
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The Difference Between a Vertical and Horizontal Balance Sheet
The only alternative to the vertical balance sheet format is the horizontal balance sheet, where assets appear in the first column and liabilities and shareholders' equity appear in the second column. In this format, the totals of each column should always be the same.
The vertical balance sheet format is much more popular than the horizontal balance sheet format, because you can use it to include the balance sheets for multiple periods on a single page, using a side-by-side presentation format that may span a large number of reporting periods.