Module 2.1

• Balance Sheet

  • A financial statement that summarizes the financial condition or financial position of the business at a given point in time.
  • Hence, it is also called the statement of condition or statement of financial position
• Balance Sheet

  • Report of what the farm business owns (assets) and owes to outsiders (liabilities) and to internal owner/s (owner’s equity)
  • Report of the sources (liabilities and owner’s equity) and uses (assets) of the funds of the farm business
• Balance Sheet

  • Prepared at the end of an accounting period, a year, or a quarter (calendar year, fiscal year)
  • The fact that the balance sheet is prepared on a particular date is significant. For instance, the amount of the account balances could be materially different on Dec 31 or Jan 2.
• Parts of a Balance Sheet

  1. Assets
  2. Liabilities
  3. Owner's Equity
• Assets

  • What the farm business OWNS
  • They are resources invested in the farm that can be used in the future.
  • They can be classified based on LIQUIDITY and USEFUL LIFE.
• Current Assets

  • More liquid assets – can be sold quickly and converted to cash easily without disrupting future production activities
  • Either used up or sold in the next year as a normal part of business activities
  • Listed in order of decreasing liquidity
• Fixed Assets

  • Assets owned primarily to produce agricultural commodities that can then be sold to produce cash income
  • Less liquid – more difficult to sell quickly and easily at their full market value
  • Their sale would affect the farm’s ability to produce income
• LIABILITIES

  • What the farm business OWES to outsiders
  • Any debt or financial obligation owed to someone else
  • Can be classified based on the LENGTH OF TIME the liabilities are due
• Current Liabilities

  • Obligations that would be paid back within a short period of time from the date of the balance sheet
  • Those that have to be paid out of current assets within one year
• Long Term Liabilities

  • Liabilities that do not have to be paid in full within the year
  • Debts whose maturity dates are beyond one year
• OWNER’S EQUITY

  • What the farm business OWES to the owner
  • Also referred to as proprietorship and networth
  • Residual claim against assets of the business after total liabilities are deducted as of the date of the balance sheet
  • Amount the owner/s have invested in the business