The Balance Sheet Assets Liabilities Equity Balance Sheet
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 Equity +/- Net Income +/- Valuation Changes - Family living withdrawals + Capital contributions Liabilities Equity
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 Farm’s Balance Sheet Total Assets Beginning $551, 166 Ending Average $600, 566 $575, 866 Total Liabilities $356, 060 $363, 119 $359, 590 Net Worth $195, 106 $237. 447 $216. 276 % in Debt 64% 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
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