The Balance Sheet

Assets = Liabilities + Equity

Balance Sheet
Is Statement of Financial
Position Not necessarily the value of a business Only an estimate of market Value

Balance Sheet
Assets of a business
ultimately valued by their ability to generate revenue True value determined from actual sale to third party

Primary Financial Statements

Balance Sheet Earnings Statement Cash Flow Statement

Types of Accounts
Assets Liabilities Equity Income Expenses

Beginning Balance Sheet

Assets Liabilities

Ending Balance Sheet

Assets Liabilities

Equity

Equity

+/- Net Income +/- Valuation Changes - Family living withdrawals + Capital contributions

Account Valuation
All accounts have dollar
value Asset Accounts

Cost Basis Market Value

Current Assets
Those that will be
realized in cash, sold or consumed in the current operating cycle (1 year)

Current Assets
Inventories
Raised for Sale Raised for use in Production Purchased for Resale Purchased for use in Production Page II-32

Valuation Issues
Inventories
Lower of Cost or Market Blending

Non Current Assets

Machinery & Equipment Breeding Livestock Buildings & Improvements Land Other

Valuation Issues
Raised Breeding Stock
Full Cost Absorption Base Value Method Page II-36, F-1

Current Liabilities
Those that will be
discharged by use of current assets or creation of additional current liabilities in the current operating cycle.

Deferred Taxes
Tax liability in event of
liquidation Liquidation Value Tax Basis times tax rate Page II-24

Depreciation
Allocation of the expense
that reflects using up of capital assets

Depreciation
Original Cost Salvage Value

Years of useful Life

Depreciation Issues
Straight line Accelerated
Front end loaded Short life span

Section 179 Zero Salvage Value

Depreciation Issues
Capitalize or Expense
Small tools Equipment Major repairs Improvements

Example Farms Balance Sheet

Total Assets Beginning $551,166 Ending Average $600,566 $575,866

Total Liabilities
Net Worth % in Debt

$356,060
$195,106 64%

$363,119 $359,590
$237.447 $216.276 60% 62%

Leverage
<40% - Financially Sound 40-70% - Vulnerable >70% - Financial Stress >100% - Insolvent

Accounts Receivable
Sales Revenue Sales/Week = 52 weeks
Accts. Receivable = Weeks to Collect Sales/Week

Inventory
Cost of Goods Sold Inventory = Turnover Inventory
52 Weeks = Average Inventory Inv. Turnover Holding Time

Accounts Payable
Inventory
Ave. Inv. Holding Time = COGS/Wk

Accounts Payable = Weeks to Pay COGS/Wk