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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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BALANCE SHEET

  • STATEMENT OF FINANCIAL POSITION

    KEY CONCEPTS

  • ASSETS = LIABILITIES + OWNER EQUITY

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


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  • 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


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ASSETS DETERMINE ACCRUAL NET INCOME AND EARNED OWNER EQUITY

  • ASSETS INCLUDE EVERYTHING OWNED THAT HAS VALUE

  • REPRESENTS THE TOTAL CAPITAL INVESTED IN THE BUSINESS


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ASSETS DETERMINE ACCRUAL NET INCOME AND EARNED OWNER EQUITY

  • 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)


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LIABILITIES AND OWNERS EQUITY DETERMINE ACCRUAL NET INCOME AND EARNED OWNER EQUITY

  • LIABILITIES REPRESENT DEBT CAPITAL OR CLAIMS BY OTHERS AGAINST THE ASSETS

  • EQUITY REPRESENTS THE RESIDUAL CLAIM BY THE OWNERS AGAINST THE ASSETS


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LIABILITIES DETERMINE ACCRUAL NET INCOME AND EARNED OWNER EQUITY

  • 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.


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SCHEDULES DETERMINE ACCRUAL NET INCOME AND EARNED OWNER EQUITY

  • #1MARKETABLE SECURITIES

  • #2PREPAID EXPENSES

    EXAMPLE- PAY AUTO INSURANCE YEARLY, THEREFORE, CREATING A PREPAID EXPENSE ITEM.

  • #3SUPPLIES

  • #4GROWING CROPS

    DIRECT CASH COSTS INCURRED TO DATE

  • #5CAPITAL LEASES, INVESTMENTS IN CO-0PS

    CAPITAL LEASES ARE GENERALLY LEASE PURCHASE OF EQUIPMENT


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  • #6 RAISED BREEDING LIVESTOCK – BASE VALUE APPROACH DETERMINE ACCRUAL NET INCOME AND EARNED OWNER EQUITY

  • #7RAISED BREEDING LIVESTOCK - COST LESS DEPRECIATION APPROACH

  • #8PURCHASED BREEDING LIVESTOCK

  • #9MACHINERY AND EQUIPMENT

  • #10REAL ESTATE

  • #12NON-CURRENT LIABILITIES

  • #13 DEFERRED TAX LIABILITY


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ASSET VALUATION DETERMINE ACCRUAL NET INCOME AND EARNED OWNER EQUITY

  • COST BASIS VALUATION

    • COST LESS ACCUMULATED DEPRECIATION

  • MARKET BASIS VALUATION

    • FAIR MARKET VALUE


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VALUATION OF RAISED BREEDING LIVESTOCK OF CAPITAL ASSETS –

  • FULL COST ABSORPTION METHOD

  • BASE VALUE METHOD


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FULL COST ABSORPTION METHOD OF CAPITAL ASSETS –

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

  • ANIMALS ARE THEN DEPRECIATED JUST LIKE PURCHASED BREEDING ANIMALS


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BASE VALUE APPROACH OF CAPITAL ASSETS –

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


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CAPITAL LEASED ASSETS OF CAPITAL 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.


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INVESTMENTS IN CO-OPS OF CAPITAL ASSETS –

  • 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


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PERSONAL ASSETS AND LIABILITIES OF CAPITAL ASSETS –

  • 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


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COMMODITY CREDIT CORPORATION (CCC) LOANS IMPLICATIONS FOR FINANCIAL ANALYSIS

  • 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.


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NOTES DUE IMPLICATIONS FOR FINANCIAL ANALYSIS

  • NOTES DUE WITHIN 12 MONTHS

  • CURRENT PORTION OF PRINCIPAL DUE FOR TERM NOTES


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ACCRUED INTEREST AND TAXES IMPLICATIONS FOR FINANCIAL ANALYSIS

  • ACCRUED INTEREST ON CURRENT AND TERM LOANS

  • ACCRUED TAXES:

    • PROPERTY TAXES

    • INCOME TAXES


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DEFERRED TAXES IMPLICATIONS FOR FINANCIAL ANALYSIS

  • 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.


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  • DEFERRED TAX ON NON-CURRENT ASSETS IMPLICATIONS FOR FINANCIAL ANALYSIS

    • 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


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CAPITAL LEASES IMPLICATIONS FOR FINANCIAL ANALYSIS

  • 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.


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ACCRUAL VS. CASH ACCOUNTING IMPLICATIONS FOR FINANCIAL ANALYSIS

  • 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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