BALANCE SHEET

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BALANCE SHEET
STATEMENT OF FINANCIAL POSITION
KEY CONCEPTS
ASSETS = LIABILITIES + OWNER EQUITY
ASSETS AND LIABILITIES ARE
CLASSIFIED AS EITHER CURRENT OR
NON-CURRENT
COST BASIS VALUES FOR ASSETS ARE
NEEDED TO CORRECTLY DETERMINE
ACCRUAL NET INCOME AND EARNED
OWNER EQUITY
CERTAIN LIABILITIES ACCRUE AND
EXIST ON THE DATE OF THE BALANCE
SHEET EVEN THOUGH THEY ARE NOT
DUE OR PAYABLE ON THAT DATE
NON-CURRENT DEFERRED TAX
LIABILITY ONLY AFFECTS THE MARKET
BASED NET WORTH
ASSETS
ASSETS INCLUDE EVERYTHING
OWNED THAT HAS VALUE
REPRESENTS THE TOTAL CAPITAL
INVESTED IN THE BUSINESS
ASSETS
CURRENT:
MOST LIQUID
CASH OR NEAR-CASH ITEMS
ASSETS THAT CAN BE CONVERTED TO CASH
WITHOUT DISRUPTING THE ONGOING BUSINESS
NON-CURRENT:
WORKING ASSETS THAT YIELD SERVICES TO THE
BUSINESS OVER TIME.
THEIR SALE WOULD DISRUPT THE BUSINESS.
(MACHINERY AND EQUIPMENT, REAL ESTATE,
BREEDING LIVESTOCK)
LIABILITIES AND OWNERS
EQUITY
LIABILITIES REPRESENT DEBT
CAPITAL OR CLAIMS BY OTHERS
AGAINST THE ASSETS
EQUITY REPRESENTS THE RESIDUAL
CLAIM BY THE OWNERS AGAINST
THE ASSETS
LIABILITIES
CURRENT:
EXISTING OBLIGATIONS THAT ARE PAYABLE
WITHIN ONE YEAR OR ACCOUNTING PERIOD
NON-CURRENT:
DEBT WITH ORIGINAL MATURITY OVER ONE YEAR,
EXCEEDING THE CURRENT PORTION OF PRINCIPLE
DUE.
SCHEDULES
#1 MARKETABLE SECURITIES
#2 PREPAID EXPENSES
EXAMPLE- PAY AUTO INSURANCE YEARLY,
THEREFORE, CREATING A PREPAID EXPENSE
ITEM.
#3 SUPPLIES
#4 GROWING CROPS
DIRECT CASH COSTS INCURRED TO DATE
#5 CAPITAL LEASES, INVESTMENTS IN CO-0PS
CAPITAL LEASES ARE GENERALLY LEASE
PURCHASE OF EQUIPMENT
#6 RAISED BREEDING LIVESTOCK – BASE
VALUE APPROACH
#7 RAISED BREEDING LIVESTOCK - COST LESS
DEPRECIATION APPROACH
#8 PURCHASED BREEDING LIVESTOCK
#9 MACHINERY AND EQUIPMENT
#10 REAL ESTATE
#12 NON-CURRENT LIABILITIES
#13 DEFERRED TAX LIABILITY
ASSET VALUATION
COST BASIS VALUATION
COST LESS ACCUMULATED
DEPRECIATION
MARKET BASIS VALUATION
FAIR MARKET VALUE
MAJOR ISSUE REGARDING ASSET
VALUATION RELATES TO
VALUATION OF CAPITAL ASSETS –
RAISED BREEDING LIVESTOCK
MACHINERY AND EQUIPMENT
BUILDINGS
LAND
VALUATION OF RAISED
BREEDING LIVESTOCK
FULL COST ABSORPTION METHOD
BASE VALUE METHOD
FULL COST ABSORPTION
METHOD
ALL COST TO BRING ANIMALS INTO
THE BREEDING HERD ALLOCATED
AND CAPITALIZED
ANIMALS ARE THEN DEPRECIATED
JUST LIKE PURCHASED BREEDING
ANIMALS
BASE VALUE APPROACH
A BASE VALUE IS ESTABLISHED FOR
VARIOUS CATEGORIES OF RAISED
BREEDING ANIMALS
CAPITAL LEASED ASSETS
ASSETS UNDER A CAPITAL LEASE ARE TREATED
LIKE ANY OTHER CAPITAL ASSET.
THEY HAVE BOTH A COST AND MARKET VALUE
WHICH MAY DIFFER.
THE COST BASIS IS THE PRESENT VALUE OF ALL
FUTURE LEASE PAYMENTS, WHICH IS THEN
DEPRECIATED.
ALTERNATIVELY, THE “BUY-OUT AMOUNT” MAY
BE DETERMINED EACH YEAR AND BE LISTED AS
THE COST BASIS AND THE LIABILITY, WHICH
WILL SHOW THE ASSET AS BEING FULLY
FINANCED.
INVESTMENTS IN CO-OPS
ARE NOT MARKETABLE SECURITIES
– THEREFORE, LISTED AS NONCURRENT ASSETS
COST BASIS IS THE BOOK CREDIT
VALUE LISTED BY THE CO-OP
MARKET VALUE IS SHOWN AS THE
COST BASIS, EVEN THOUGH NO
REAL MARKET VALUE EXIST
PERSONAL ASSETS AND
LIABILITIES
MOST AGRICULTURAL OPERATIONS
ARE BEING SMALL, SOLE
PROPRIETOR, FAMILY-OPERATED
BUSINESS
MOST OFTEN THE BUSINESS AND
PERSONAL ASSETS OF THE OWNERS
ARE COMBINED ON THE BALANCE
SHEET
COMBINING BUSINESS AND
PERSONAL ASSETS AND LIABILITIES
HAS IMPLICATIONS FOR FINANCIAL
ANALYSIS
PERSONAL ITEMS SHOULD BE
ACCOUNTED FOR SEPARATELY IN
ORDER TO OBTAIN A TRUE
MEASURE OF BUSINESS FINANCIAL
PERFORMANCE
COMMODITY CREDIT
CORPORATION (CCC) LOANS
NON-RECOURSE LOANS ON COMMODITIES
SHOULD BE TREATED AS A LOAN EVEN IF THE
INTENT IS TO FORFEIT THE COMMODITY IN LIEU
OF THE REPAYMENT.
THE TAX TREATMENT OF THE LOAN SHOULD
NOT CHANGE THE WAY THE LOAN IS HANDLED
ON THE BALANCE SHEET
THE COMMODITY UNDER LOAN SHOULD BE
SHOWN ON THE BALANCE SHEET AS AN
INVENTORY.
NOTES DUE
NOTES DUE WITHIN 12 MONTHS
CURRENT PORTION OF PRINCIPAL
DUE FOR TERM NOTES
ACCRUED INTEREST AND
TAXES
ACCRUED INTEREST ON CURRENT
AND TERM LOANS
ACCRUED TAXES:
PROPERTY TAXES
INCOME TAXES
DEFERRED TAXES
DEFERRED TAX ON CURRENT
ASSETS
WITH CASH TAX REPORTING, TAXES ON
CERTAIN CURRENT ASSETS SUCH AS
INVENTORIES HELD FROM ONE TAX
YEAR TO THE NEXT SHOULD BE
ACCOUNTED FOR AS A CURRENT
LIABILITY.
DEFERRED TAX ON NON-CURRENT
ASSETS
THE SALE OR LIQUIDATION OF CAPITAL
ASSETS OFTEN RESULTS IN A TAX
LIABILITY
IF THE MARKET VALUE EXCEEDS THE
COST BASIS (COST LESS
DEPRECIATION) A CAPITAL GAIN EXIST
AND WILL BE TAXED.
THEREFORE, A POTENTIAL TAX
LIABILITY EXIST AND SHOULD BE
ACCOUNTED FOR AS A NON-CURRENT
LIABILITY
CAPITAL LEASES
A CAPITAL LEASE IS A DIRECT
SUBSTITUTE FOR A PURCHASE OF
AN ASSET.
A CAPITAL LEASE SHOULD BE
CAPITALIZED AND AMORTIZED
OVER THE TERM OF THE LEASE.
ACCRUAL VS. CASH ACCOUNTING
THE ACCRUAL METHOD OF ACCOUNTING
RECOGNIZES REVENUES AND EXPENSES AS
THEY OCCUR
THE CASH METHOD OF ACCOUNTING
RECOGNIZES REVENUES AND EXPENSES WHEN
CASH ACTUALLY CHANGES HANDS
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