A financial statement has four components: balance sheet, income statement, cash flow statement and statement of shareholders' equity. The balance sheet is a statement of what the business owns and owes at a specific moment. The income statement shows how much money the company made or lost and spent over a fixed period. The cash flow statement shows the movement of money in and out of the company, and the statement of shareholders' equity displays changes in the investment interest of shareholders. Because they have value and are owned by the company, certificates of deposit are considered assets. As assets, their value is displayed on the balance sheet.
Balance Sheet
The balance sheet gives the reader details about a company's assets, liabilities and shareholders' equity. Because assets and liabilities change over time -- in the course of doing business -- a balance sheet reflects the company's financial condition at a specific moment, typically the end of the month, quarter or fiscal year end. On the balance sheet, assets must always equal liabilities plus shareholders' equity. Any change to the balance sheet, such as the addition of a line item to reflect the value of certificates of deposit, requires an opposing entry to keep the balance sheet in balance.
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Assets
An asset is listed on the balance sheet and usually arranged in order by how quickly it can be converted to cash. Some accountants use the nomenclature of "Current" and "Noncurrent" or "Short-Term" and "Long-Term" to separate assets that can be converted into cash within a year versus assets that will not be sold or converted into cash within a year. For example, current assets would be cash and inventory. Noncurrent assets would be a warehouse and manufacturing equipment. Because certificates of deposit can be converted immediately into cash -- despite a penalty for early withdrawal -- they are considered a current -- or short-term -- asset.
Value
Determine the value of the certificates of deposit at the point when the balance sheet entry is being made. This can be accomplished by calling the financial institution holding the certificates. If you're banking online, you can log into your business's account for the information.
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Create Balance Sheet Entry
Create a line item, under current or short-term assets, for the certificates of deposit. Only one line is necessary if the value of all certificates is totaled, or you can devote a line to each certificate. Enter the asset value as a debit. Create a credit for the same amount in the category that was the source of the funds. For instance, if money was moved from cash to the CDs, credit the cash account. If a long-term asset was sold to obtain the cash, credit the appropriate long-term asset account. If a shareholder put additional cash into the company, the credit would be against shareholders' equity.
