YOUR BALANCE SHEET

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YOUR BALANCE SHEET

• By Roger Betz, Sherrill Nott, Gerald Schwab
• Day 1
• break to 12 p.m.

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In the United States
Four Basic Financial Documents

• Net Worth Statement (Balance Sheet)
• Income Statement
• Cash Flow Statement
• and a newer one -- Statement of Owner Equity

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Balance Sheet defined
A List of Assets Owned and Debts Owed -- At a
Given Time, -- With Dollar Values Attached.
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If the Question Is
Are my assets worth more than my
liabilities? The Problem is SOLVENCY! If Net
Worth is Positive, the Business is
Solvent Definition Assets - Liabilities
(Debts) Net Worth or Equity
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What is the Balance Sheet or Net Worth Statement?

• Picture in time -- a specific point, as in
  Midnight, 12/31/XX.
• Shows financial position -- ability to handle
  risk
• Net result of past
• Very important component to track and monitor
  financial progress
• Basic building block for financial analysis

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The Balance Sheet

• Name -- What does this represent?
• Partnership, individual, combined
• Needs to be consistent over time
• Date -- This is as of what date?
• Listing of all assets and all liabilities
• Balances at the bottom of form
• Assets Liabilities plus Equity

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Balance Sheet PreparationSome Issues

• IDENTIFY clearly the person(s) or the business
  entity being described
• SEPARATE the business assets and liabilities from
  the personal
• Be CONSISTENT as to WHEN the Balance Sheet is
  prepared
• at a minimum, prepare a net worth statement when
  your accounting year ends
• Valuation of Assets -- costs and/or market
• recommend two column balance sheet
• The Balance Sheet is the Cornerstone to Financial
  Management

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Take out a Piece of Paper
Draw some lines and label like this
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Parts of the Balance Sheet
Assets What you own have control of

• Current assets
• Normally converted to cash in 12 months, like
  crops, market livestock, prepaid expenses, cash,
  savings
• Intermediate Assets
• Useful life of one to 10 years -- machinery,
  breeding livestock, equipment, stocks, some
  buildings
• Long Term Assets
• Normal useful life of more than 10 years --
  land, buildings, stocks
• Selling would typically decrease volume or size
  of business

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Parts of the Balance Sheet(Current)Liabilities
-- What you owe someone else (against what you
own)

• Current Liabilities
• What you are scheduled to pay in the next 12
  months
• Unpaid bills, accrued interest, property taxes
• Operating loans
• Principal payments on term debts to be made in
  the next 12 months

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Parts of the Balance Sheet(Intermediate)Liabili
ties -- What you owe to someone else (against
what you own)

• Intermediate Liabilities
• What is scheduled to be paid in one to 10 years
  (subtract out the current position)
• Typically, machinery loans, breeding livestock,
  special use buildings
• Match up to the intermediate assets

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Parts of the Balance Sheet(Long
Term)Liabilities -- What you owe to someone
else (against what you own)

• Long Term Liabilities
• What was scheduled originally as 11 or more
  years
• Land debt, house payments
• Match up to the long term assets

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Parts of a Balance Sheet(Term)

• Definition
• Term Debts are
• Intermediate liabilities
• (Intermediate term)
• Long term liabilities
• Term debts are not current loans

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Balance Sheet Specials

• 1. Rented assets
• Assets
• 1) Belong on landlords balance sheet
• 2) Footnote on tenants
• 3) If payable, rent is short-term debt
• 4) Growing crops

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Balance Sheet Specials

• 2. Growing Crops
• 1) Date sets the list
• 2) Winter Wheat
• 3) Value Cost of variable inputs

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3. Leased Items(tractors, pickups, buildings)

• Assets
• A) On users balance sheet
• lease payments due
• Liabilities
• B) lease payments due

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Balance Sheet Specials

• 4. Government Commodity Loans

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How To Build A Balance Sheet

• 1) Do a count
• Crops bushels, tons, etc.
• Animals head
• Supplies
• Buildings
• Land acres
• 2) Prices for each of the above.
• Recommend both cost and market value for term
  assets

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How To Build A Balance Sheet

• 3) Machinery list (depreciation schedule?)
• Cost less depreciation book value
• 4) Assemble the above into the format
• 5) Add up the assets
• 6) Add up the debts
• 7) Assets minus debts net worth or equity

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Z FarmsBalance Sheet Trends(example)
WHY?
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Change in Net Worthdue to

• Retained Earnings
• from profits earned and retained in business
• Market Valuation Equity
• from change in market value of assets

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Retained Earnings(contributed capital)

• Dollars earned by the business that are kept or
  retained for reinvestment in the business
• Calculated by
• Total Assets _at_ Cost Value Basis
• Total Liabilities before Contingent
  Liabilities

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Valuation EquityDollars of asset value that
are created because the market value of term
assets is greater than the book value

• Calculated by
• Total assets _at_ Market Value basis
• - Total Liabilities including Contingent
  Liabilities
• - Retained Earnings (contributed Capital)

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What a Balance Sheet is NOT

• Does NOT necessarily tell you if the business is
  making money
• Does NOT tell you where net worth came from

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A Good Balance Sheet

• 1) One page summary
• 2) Name and date
• 3) Shows type of farm
• 4) Cost and market columns

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A Good Balance Sheet
5) Indicates physical quantities of major
items 6) Sequence of items Sale time quick
long 7) Assets less debts equals net worth (Own
- Owe Equity)
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The Balance SheetBuilding Block forFinancial
Analysis

• Financial Position
• Trend Analysis
• Feeds Into the Income Statement
• Communication to Self
• Communicating with those outside the business
• Needs Good Detail