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The Balance Sheet

The Balance Sheet. Mathematical Applications in Agriculture. What is a balance sheet?. A balance sheet summarizes the financial condition if a business at a point in time. Systematic organization of everything “owned” or “owed” by a business or an individual at a given time.

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The Balance Sheet

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  1. The Balance Sheet Mathematical Applications in Agriculture

  2. What is a balance sheet? • A balance sheet summarizes the financial condition if a business at a point in time. • Systematic organization of everything “owned” or “owed” by a business or an individual at a given time. • “Balance” in balance sheet comes from the equation: Assets = liabilities + owner equity Owner Equity = assets - liabilities

  3. When can a balance sheet be used? • Applying for a loan. • Lender needs to know what the business has to offer as collateral. • Current assets • Current liabilities

  4. What is an asset or liability? • Assets- Something owned by the business. • Two Purposes: • Can be sold to generate cash • Can be used to produce goods that can be sold for cash • Items that may be sold easily to produce cash are known as liquid assets. Do not disrupt future production. • Carcasses bought and sold on the grid • Other examples?

  5. What is an asset or liability? • Current Assets- Assets bought or sold within a year (usually liquid assets). • Noncurrent Assets- Larger items such as buildings or machinery used for production. • Liabilities- Obligation or debt owed to someone else (lender). • Current Liabilities are due within one year of the balance sheet.

  6. What is an asset or liability? • Noncurrent Liability- Obligations that do not have to be paid within one year (the outstanding balance on current liabilities).

  7. Owner Equity • Owner Equity-Represents the amount of money left for the owner of the business after liabilities have been paid (also called net worth). • Owner equity is the owner’s current investment in the company or business.

  8. Sources of Equity • There are three basic sources of equity: • Capital contributed to the business by owners • Business profit from a product or service • Change by fluctuating market values • Examples???

  9. Depreciation of Assets • Maintaining a set of records for a farm/ranch or agribusiness requires determining the value of all types of assets. • Over time, machinery and buildings grow old, wear out, and become less valuable. • Depreciation- annual loss in value due to use, wear, tear, and age.

  10. Depreciation • In order for an asset to be depreciable: • Life of more than one year • Useful but not unlimited life Examples: business vehicles, machinery, equipment, buildings, fences, and purchased breeding livestock. Why breeding livestock?

  11. Calculating Depreciation • Cost of asset- Cost including taxes, delivery fees, and putting the asset into use. • Useful life- Total number of years the asset is expected to be used in the business. • Salvage Value- Market value of the item at the end of its useful life by the owner.

  12. Calculation Depreciation Annual Depreciation = cost – salvage value Useful Life

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