the balance sheet
DESCRIPTION
ابراهيم العنانيTRANSCRIPT
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The Balance Sheet
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Assets = Liabilities + Equity
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Balance Sheet
•Is Statement of Financial Position•Not necessarily the value of a business•Only an estimate of market Value
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Balance Sheet
•Assets of a business ultimately valued by their ability to generate revenue
•True value determined from actual sale to third party
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Primary Financial Statements
•Balance Sheet
•Earnings Statement
•Cash Flow Statement
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Types of Accounts
•Assets
•Liabilities
•Equity
•Income
•Expenses
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Assets Liabilities
Equity
Assets Liabilities
Equity
+/- Net Income+/- Valuation Changes
- Family living withdrawals+ Capital contributions
Beginning Balance Sheet Ending Balance Sheet
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Account Valuation
•All accounts have dollar value
•Asset Accounts•Cost Basis
•Market Value
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Current Assets
•Those that will be realized in cash, sold or consumed in the current operating cycle (1 year)
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Current Assets
•Inventories•Raised for Sale
•Raised for use in Production
•Purchased for Resale
•Purchased for use in Production
•Page II-32
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Valuation Issues
•Inventories•Lower of Cost or Market
•Blending
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Non Current Assets
•Machinery & Equipment
•Breeding Livestock
•Buildings & Improvements
•Land
•Other
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Valuation Issues
•Raised Breeding Stock•Full Cost Absorption
•Base Value Method
•Page II-36, F-1
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Current Liabilities
•Those that will be discharged by use of current assets or creation of additional current liabilities in the current operating cycle.
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Deferred Taxes
•Tax liability in event of liquidation
•Liquidation Value –Tax Basis times tax rate
•Page II-24
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Depreciation
•Allocation of the expense that reflects “using up” of capital assets
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Depreciation
Original Cost – Salvage Value
Years of useful Life
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Depreciation Issues
•Straight line•Accelerated•Front end loaded•Short life span
•Section 179•Zero Salvage Value
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Depreciation Issues
•Capitalize or Expense•Small tools
•Equipment
•Major repairs
•Improvements
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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%
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Leverage
•<40% - Financially Sound
•40-70% - Vulnerable
•>70% - Financial Stress
•>100% - Insolvent
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Accounts Receivable
Sales Revenue52 weeks
=
Weeks to Collect
Sales/Week
Accts. Receivable
Sales/Week=
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Inventory
Cost of Goods Sold
Inventory=
InventoryTurnover
52 Weeks
Inv. Turnover=Average Inventory
Holding Time
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Accounts Payable
Inventory
Ave. Inv. Holding Time=COGS/Wk
Accounts Payable
COGS/Wk=Weeks to Pay