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. AssetsLiabilities Equity AssetsLiabilities Equity +/- Net Income +/- Valuation Changes - Family living withdrawals + Capital contributions Beginning Balance SheetEnding Balance Sheet

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

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

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