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

Assets Liabilities

Equity

Assets Liabilities

Equity

+/- Net Income+/- Valuation Changes

- Family living withdrawals+ Capital contributions

Beginning Balance Sheet Ending Balance Sheet

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

Beginning Ending Average

Total Assets $551,166 $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 Revenue52 weeks

=

Weeks to Collect

Sales/Week

Accts. Receivable

Sales/Week=

Inventory

Cost of Goods Sold

Inventory=

InventoryTurnover

52 Weeks

Inv. Turnover=Average Inventory

Holding Time

Accounts Payable

Inventory

Ave. Inv. Holding Time=COGS/Wk

Accounts Payable

COGS/Wk=Weeks to Pay