BALANCE SHEET

STATEMENT OF FINANCIAL POSITION

KEY CONCEPTS

ASSETS = LIABILITIES + OWNER EQUITY

ASSETS AND LIABILITIES ARE CLASSIFIED AS EITHER CURRENT OR NON-CURRENT

COST BASIS VALUES FOR ASSETS ARE NEEDED TO CORRECTLY DETERMINE ACCRUAL NET INCOME AND EARNED OWNER EQUITY

CERTAIN LIABILITIES ACCRUE AND EXIST ON THE DATE OF THE BALANCE SHEET EVEN THOUGH THEY ARE NOT DUE OR PAYABLE ON THAT DATE

NON-CURRENT DEFERRED TAX LIABILITY ONLY AFFECTS THE MARKET BASED NET WORTH

ASSETS

ASSETS INCLUDE EVERYTHING OWNED THAT HAS VALUE

REPRESENTS THE TOTAL CAPITAL INVESTED IN THE BUSINESS

ASSETS

CURRENT:MOST LIQUIDCASH OR NEAR-CASH ITEMSASSETS 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)

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

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.

SCHEDULES

#1 MARKETABLE SECURITIES#2 PREPAID EXPENSESEXAMPLE- PAY AUTO INSURANCE YEARLY, THEREFORE, CREATING A PREPAID EXPENSE ITEM.#3 SUPPLIES#4 GROWING CROPSDIRECT CASH COSTS INCURRED TO DATE#5 CAPITAL LEASES, INVESTMENTS IN CO-0PSCAPITAL LEASES ARE GENERALLY LEASE PURCHASE OF EQUIPMENT

#6 RAISED BREEDING LIVESTOCK – BASE VALUE APPROACH

#7 RAISED BREEDING LIVESTOCK - COST LESS DEPRECIATION APPROACH

#8 PURCHASED BREEDING LIVESTOCK

#9 MACHINERY AND EQUIPMENT

#10 REAL ESTATE

#12 NON-CURRENT LIABILITIES

#13 DEFERRED TAX LIABILITY

ASSET VALUATION

COST BASIS VALUATION COST LESS ACCUMULATED DEPRECIATION

MARKET BASIS VALUATIONFAIR MARKET VALUE

MAJOR ISSUE REGARDING ASSET VALUATION RELATES TO VALUATION OF CAPITAL ASSETS –

RAISED BREEDING LIVESTOCK

MACHINERY AND EQUIPMENT

BUILDINGS

LAND

VALUATION OF RAISED BREEDING LIVESTOCK

FULL COST ABSORPTION METHOD

BASE VALUE METHOD

FULL COST ABSORPTION METHOD

ALL COST TO BRING ANIMALS INTO THE BREEDING HERD ALLOCATED AND CAPITALIZED

ANIMALS ARE THEN DEPRECIATED JUST LIKE PURCHASED BREEDING ANIMALS

BASE VALUE APPROACH

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

CAPITAL LEASED ASSETSASSETS 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.

INVESTMENTS IN CO-OPS

ARE NOT MARKETABLE SECURITIES – THEREFORE, LISTED AS NON-CURRENT ASSETSCOST BASIS IS THE BOOK CREDIT VALUE LISTED BY THE CO-OPMARKET VALUE IS SHOWN AS THE COST BASIS, EVEN THOUGH NO REAL MARKET VALUE EXIST

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

COMBINING BUSINESS AND PERSONAL ASSETS AND LIABILITIES HAS IMPLICATIONS FOR FINANCIAL ANALYSIS

PERSONAL ITEMS SHOULD BE ACCOUNTED FOR SEPARATELY IN ORDER TO OBTAIN A TRUE MEASURE OF BUSINESS FINANCIAL PERFORMANCE

COMMODITY CREDIT CORPORATION (CCC) LOANS

NON-RECOURSE LOANS ON COMMODITIESSHOULD 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 SHEETTHE COMMODITY UNDER LOAN SHOULD BE SHOWN ON THE BALANCE SHEET AS AN INVENTORY.

NOTES DUE

NOTES DUE WITHIN 12 MONTHS

CURRENT PORTION OF PRINCIPAL DUE FOR TERM NOTES

ACCRUED INTEREST AND TAXES

ACCRUED INTEREST ON CURRENT AND TERM LOANS

ACCRUED TAXES:PROPERTY TAXES

INCOME TAXES

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.

DEFERRED TAX ON NON-CURRENT ASSETS

THE SALE OR LIQUIDATION OF CAPITAL ASSETS OFTEN RESULTS IN A TAX LIABILITYIF 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

CAPITAL LEASES

A CAPITAL LEASE IS A DIRECT SUBSTITUTE FOR A PURCHASE OF AN ASSET.

A CAPITAL LEASE SHOULD BE CAPITALIZED AND AMORTIZED OVER THE TERM OF THE LEASE.

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