What is a classified balance sheet?

A classified balance sheet is defined as a statement that organizes assets and liabilities into current and non-current categories. This classification helps users of the financial statements, such as investors and creditors, to better assess the short-term and long-term financial position of a company. By separating assets and liabilities into these distinct categories, stakeholders gain insight into the liquidity and solvency of the business.

Current assets are those expected to be converted into cash or used up within one year, while non-current assets are long-term investments and assets that provide value over multiple years. Similarly, current liabilities are obligations that need to be settled within one year, whereas non-current liabilities are long-term debts that extend beyond one year. This structure not only enhances clarity and comparability but also facilitates informed decision-making regarding the company's financial stability and operational efficiency.

In contrast, combining income and expenses focuses on profitability rather than financial position, a report on cash inflows and outflows emphasizes cash management, and an overview of shareholder equity and retained earnings gives insights into ownership and historical profits but does not provide the same snapshot of current and long-term assets and liabilities. Thus, option B accurately describes the key characteristic of a classified balance sheet.