The Balance Sheet

Assets = Liabilities + Equity

Balance SheetIs Statement of Financial PositionNot necessarily the value of a businessOnly an estimate of market Value

Balance SheetAssets of a business ultimately valued by their ability to generate revenueTrue value determined from actual sale to third party

Primary Financial StatementsBalance SheetEarnings StatementCash Flow Statement

Types of AccountsAssetsLiabilitiesEquityIncomeExpenses

AssetsLiabilitiesEquityAssetsLiabilitiesEquity+/- Net Income+/- Valuation Changes Family living withdrawals+ Capital contributionsBeginning Balance SheetEnding Balance Sheet

Account ValuationAll accounts have dollar valueAsset AccountsCost BasisMarket Value

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

Current AssetsInventoriesRaised for SaleRaised for use in ProductionPurchased for ResalePurchased for use in ProductionPage II-32

Valuation IssuesInventoriesLower of Cost or MarketBlending

Non Current AssetsMachinery & EquipmentBreeding LivestockBuildings & ImprovementsLandOther

Valuation IssuesRaised Breeding StockFull Cost AbsorptionBase Value MethodPage II-36, F-1

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

Deferred TaxesTax liability in event of liquidationLiquidation Value Tax Basis times tax ratePage II-24

DepreciationAllocation of the expense that reflects using up of capital assets

DepreciationOriginal Cost Salvage ValueYears of useful Life

Depreciation IssuesStraight lineAcceleratedFront end loadedShort life spanSection 179Zero Salvage Value

Depreciation IssuesCapitalize or ExpenseSmall toolsEquipmentMajor repairsImprovements

Example Farms Balance Sheet

Beginning Ending AverageTotal Assets$551,166$600,566$575,866Total Liabilities$356,060$363,119$359,590Net Worth$195,106$237.447$216.276% in Debt 64% 60% 62%

Leverage70% - Financial Stress>100% - Insolvent

Accounts ReceivableSales Revenue52 weeks=Weeks to CollectSales/WeekAccts. ReceivableSales/Week=

InventoryCost of Goods SoldInventory=InventoryTurnover52 WeeksInv. Turnover=Average InventoryHolding Time

Accounts PayableInventoryAve. Inv. Holding Time=COGS/WkAccounts PayableCOGS/Wk=Weeks to Pay

*$42,341 increase in net worth$49,400 increase in assetsIncrease livestock being held for salecould have been capital assets$7,000 increase in liabilities