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BALANCE SHEET

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

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BALANCE SHEET

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  1. BALANCE SHEET • STATEMENT OF FINANCIAL POSITION KEY CONCEPTS • ASSETS = LIABILITIES + OWNER EQUITY • ASSETS AND LIABILITIES ARE CLASSIFIED AS EITHER CURRENT OR NON-CURRENT

  2. 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

  3. ASSETS • ASSETS INCLUDE EVERYTHING OWNED THAT HAS VALUE • REPRESENTS THE TOTAL CAPITAL INVESTED IN THE BUSINESS

  4. ASSETS • CURRENT: • MOST LIQUID • CASH OR NEAR-CASH ITEMS • ASSETS 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)

  5. 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

  6. 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.

  7. SCHEDULES • #1 MARKETABLE SECURITIES • #2 PREPAID EXPENSES EXAMPLE- PAY AUTO INSURANCE YEARLY, THEREFORE, CREATING A PREPAID EXPENSE ITEM. • #3 SUPPLIES • #4 GROWING CROPS DIRECT CASH COSTS INCURRED TO DATE • #5 CAPITAL LEASES, INVESTMENTS IN CO-0PS CAPITAL LEASES ARE GENERALLY LEASE PURCHASE OF EQUIPMENT

  8. #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

  9. ASSET VALUATION • COST BASIS VALUATION • COST LESS ACCUMULATED DEPRECIATION • MARKET BASIS VALUATION • FAIR MARKET VALUE

  10. MAJOR ISSUE REGARDING ASSET VALUATION RELATES TO VALUATION OF CAPITAL ASSETS – • RAISED BREEDING LIVESTOCK • MACHINERY AND EQUIPMENT • BUILDINGS • LAND

  11. VALUATION OF RAISED BREEDING LIVESTOCK • FULL COST ABSORPTION METHOD • BASE VALUE METHOD

  12. 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

  13. BASE VALUE APPROACH • A BASE VALUE IS ESTABLISHED FOR VARIOUS CATEGORIES OF RAISED BREEDING ANIMALS

  14. CAPITAL LEASED ASSETS • ASSETS 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.

  15. INVESTMENTS IN CO-OPS • ARE NOT MARKETABLE SECURITIES – THEREFORE, LISTED AS NON-CURRENT ASSETS • COST BASIS IS THE BOOK CREDIT VALUE LISTED BY THE CO-OP • MARKET VALUE IS SHOWN AS THE COST BASIS, EVEN THOUGH NO REAL MARKET VALUE EXIST

  16. 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

  17. 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

  18. COMMODITY CREDIT CORPORATION (CCC) LOANS • NON-RECOURSE LOANS ON COMMODITIES • SHOULD 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 SHEET • THE COMMODITY UNDER LOAN SHOULD BE SHOWN ON THE BALANCE SHEET AS AN INVENTORY.

  19. NOTES DUE • NOTES DUE WITHIN 12 MONTHS • CURRENT PORTION OF PRINCIPAL DUE FOR TERM NOTES

  20. ACCRUED INTEREST AND TAXES • ACCRUED INTEREST ON CURRENT AND TERM LOANS • ACCRUED TAXES: • PROPERTY TAXES • INCOME TAXES

  21. 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.

  22. DEFERRED TAX ON NON-CURRENT ASSETS • THE SALE OR LIQUIDATION OF CAPITAL ASSETS OFTEN RESULTS IN A TAX LIABILITY • IF 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

  23. 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.

  24. 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

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