1. Balance Sheet Purpose
Determines wealth of business

2. Depreciation
a reduction in the value of an asset with the passage of time, due in particular to wear and tear

3. Balance Sheet Defined + $ Assets - $ Liabilities (Debts)
List of Assets Owned and Debts Owed
At a point in time
With dollar values attached
+ $ Assets
- $ Liabilities (Debts)
= $ Net Worth or Equity
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

4. Balance Sheet Asset Types
Only two classification!! But incase you are wondering…
Balance Sheet Asset Types
Current assets (<1 year)
Consumed or converted to cash in 12 months e.g. crops, market livestock, prepaid expenses,cash, savings
Intermediate (1-10 years)
e.g. machinery, breeding livestock, equipment, stocks, some buildings
Long Term (>10 years)
e.g. land, buildings, stocks
Selling would typically decrease volume or size of business

5. Balance Sheet Debt Types
Only two classification!! But incase you are wondering…
Balance Sheet Debt Types
Current liabilities (<1 year)
To pay in the next 12 months e.g. bills, accrued interest, taxes, operating loans
Intermediate (1-10 years)
What is scheduled to be paid in 1 to 10 years e.g. machinery loans, special use buildings
Long Term (>10 years)
Scheduled originally to be paid in 11 or more years e.g. land debt, house payments

6. 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

7. Change in Net Worth due to:
Retained Earnings
from profits earned and retained in business