This document provides an overview of balance sheets and key financial concepts: 1) A balance sheet is a statement of financial position that lists a business's assets, liabilities, and equity on a given date. It provides an estimate of market value but not necessarily the true value of a business. 2) Assets are ultimately valued based on their ability to generate revenue, while true value is determined from an actual sale. 3) A balance sheet, along with earnings and cash flow statements, are primary financial statements that can be used to analyze a business's financial health over time.

1. The Balance Sheet

2. Assets =
Liabilities + Equity

3. Balance Sheet
• Is Statement of Financial
Position
• Not necessarily the value
of a business
• Only an estimate of
market Value

4. Balance Sheet
• Assets of a business
ultimately valued by their
ability to generate revenue
• True value determined from
actual sale to third party

5. Primary Financial
Statements
• Balance Sheet
• Earnings Statement
• Cash Flow Statement

6. Types of Accounts
• Assets
• Liabilities
• Equity
• Income
• Expenses

7. Beginning Balance Sheet Ending Balance Sheet
Assets Liabilities Assets Liabilities
Equity Equity
+/- Net Income
+/- Valuation Changes
- Family living withdrawals
+ Capital contributions

8. Account Valuation
• All accounts have dollar
value
• Asset Accounts
• Cost Basis
• Market Value

9. Current Assets
• Those that will be
realized in cash, sold or
consumed in the current
operating cycle (1 year)

10. Current Assets
• Inventories
• Raised for Sale
• Raised for use in Production
• Purchased for Resale
• Purchased for use in Production
• Page II-32

11. Valuation Issues
• Inventories
• Lower of Cost or Market
• Blending

12. Non Current Assets
• Machinery & Equipment
• Breeding Livestock
• Buildings & Improvements
• Land
• Other

13. Valuation Issues
• Raised Breeding Stock
• Full Cost Absorption
• Base Value Method
• Page II-36, F-1

14. Current Liabilities
• Those that will be
discharged by use of current
assets or creation of
additional current liabilities
in the current operating
cycle.

15. Deferred Taxes
• Tax liability in event of
liquidation
• Liquidation Value –Tax
Basis times tax rate
• Page II-24

16. Depreciation
• Allocation of the expense
that reflects “using up”
of capital assets

17. Depreciation
Original Cost – Salvage Value
Years of useful Life

18. Depreciation Issues
• Straight line
• Accelerated
• Front end loaded
• Short life span
• Section 179
• Zero Salvage Value

19. Depreciation Issues
• Capitalize or Expense
• Small tools
• Equipment
• Major repairs
• Improvements

20. 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%

21. Leverage
• <40% - Financially Sound
• 40-70% - Vulnerable
• >70% - Financial Stress
• >100% - Insolvent

22. Accounts Receivable
Sales Revenue Sales/Week
=
52 weeks
Accts. Receivable
= Weeks to Collect
Sales/Week

23. Inventory
Cost of Goods Sold Inventory
=
Inventory Turnover
52 Weeks
= Average Inventory
Inv. Turnover Holding Time

24. Accounts Payable
Inventory
=COGS/Wk
Ave. Inv. Holding Time
Accounts Payable = Weeks to Pay
COGS/Wk