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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
BALANCE SHEET
  • STATEMENT OF FINANCIAL POSITION

KEY CONCEPTS

  • ASSETS = LIABILITIES + OWNER EQUITY
  • ASSETS AND LIABILITIES ARE CLASSIFIED AS EITHER CURRENT OR NON-CURRENT
slide2
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
  • ASSETS INCLUDE EVERYTHING OWNED THAT HAS VALUE
  • REPRESENTS THE TOTAL CAPITAL INVESTED IN THE BUSINESS
assets4
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)
liabilities and owners equity
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
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
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

slide8
#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
ASSET VALUATION
  • COST BASIS VALUATION
    • COST LESS ACCUMULATED DEPRECIATION
  • MARKET BASIS VALUATION
    • FAIR MARKET VALUE
slide11
MAJOR ISSUE REGARDING ASSET VALUATION RELATES TO VALUATION OF CAPITAL ASSETS –
    • RAISED BREEDING LIVESTOCK
    • MACHINERY AND EQUIPMENT
    • BUILDINGS
    • LAND
valuation of raised breeding livestock
VALUATION OF RAISED BREEDING LIVESTOCK
  • FULL COST ABSORPTION METHOD
  • BASE VALUE METHOD
full cost absorption 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
BASE VALUE APPROACH
  • A BASE VALUE IS ESTABLISHED FOR VARIOUS CATEGORIES OF RAISED BREEDING ANIMALS
capital leased assets
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.
investments in co ops
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
personal assets and liabilities
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
slide22
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
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.
notes due
NOTES DUE
  • NOTES DUE WITHIN 12 MONTHS
  • CURRENT PORTION OF PRINCIPAL DUE FOR TERM NOTES
accrued interest and taxes
ACCRUED INTEREST AND TAXES
  • ACCRUED INTEREST ON CURRENT AND TERM LOANS
  • ACCRUED TAXES:
    • PROPERTY TAXES
    • INCOME TAXES
deferred 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.
slide27
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
capital leases
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
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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