BALANCE SHEET

1
BALANCE SHEET

• STATEMENT OF FINANCIAL POSITION
• KEY CONCEPTS
• ASSETS LIABILITIES OWNER EQUITY
• ASSETS AND LIABILITIES ARE CLASSIFIED AS EITHER
  CURRENT OR NON-CURRENT

2
ASSETS

• ASSETS INCLUDE EVERYTHING OWNED THAT HAS VALUE
• REPRESENTS THE TOTAL CAPITAL INVESTED IN THE
  BUSINESS

3
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)

4
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

5
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.

6
ASSET VALUATION

• COST BASIS VALUATION
• COST LESS ACCUMULATED DERPRCIATION
• MARKET BASIS VALUATION
• FAIR MARKET VALUE

7

• MAJOR ISSUE REGARDING ASSET VALUATION RELATES TO
  VALUATION OF CAPITAL ASSETS
• RAISED BREEDING LIVESTOCK
• MACHINERY AND EQUIPTMENT
• BUILDINGS
• LAND

8
VALUATION OF RAISED BREEDING LIVESTOCK

• FULL COST ABSORPTION METHOD
• BASE VALUE METHOD

9
FULL COST ABSORPTION METHOD

• ALL COST TO BRING ANIMIALS INTO THE BREEDING HERD
  ALLOCATED AND CAPITILIZED
• ANIMIALS ARE THEN DEPRECIATED JUST LIKE PURCHASED
  BREEDING ANIMIALS

10
BASE VALUE APPROACH

• A BASE VALUE IS ESTABLISHED FOR VARIOUS
  CATEGORIES OF RAISED BREEDING ANIMALS

11
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.

12
INVESTMENTS IN CO-OPS

• ARE NOT MARKETABLE SECURITIES THEREFORE, LISTED
  AS NON-CURRENT 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

13
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

14

• COMBINING BUSINESS AND PRESONAL ASSETS AND
  LIABILITIES HAS IMPLICATIONS FOR FINANCIAL
  ANALYSIS
• PERSONAL ITEMS SHOULD BE ACCOUNTED FOR SEPERATELY
  IN ORDER TO OBTAIN A TRUE MEASURE OF BUSINESS
  FINANCIAL PERFORMANCE

15
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.

16
NOTES DUE

• NOTES DUE WITHIN 12 MONTHS
• CURRENT PORTION OF PRINCIPAL DUE FOR TERM NOTES

17
ACCRUED INTEREST AND TAXES

• ACCRUED INTEREST ON CURRENT AND TERM LOANS
• ACCRUED TAXES
• PROPERTY TAXES
• INCOME TAXES

18
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.

19

• 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

20
CAPITAL LEASES

• A CAPITAL LEASE IS A DIRCT SUBSTITUTE FOR A
  PURCHASE OF AN ASSET.
• A CAPITAL LEASE SHOULD BE CAPITALIZED AND
  AMORTIZED OVER THE TERM OF THE LEASE.

21
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