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