Winter is a great time to complete the farm balance sheet

By Eric Richer, Ohio State University Extension Fulton County

The balance sheet is a “snap shot” in time of your farm’s financial position, including what assets you own and how they are financed. The balance sheet is also known as the net worth statement. When completed precisely and timely, the balance sheet and corresponding ratios can be a very valuable tool to determine farm financial health. The balance sheet objectively measures farm business growth, liquidity, solvency, and risk capacity.


Categorizing balance sheet items

The assets and liabilities on the balance sheet (including the financing of the assets) are used to determine the equity, or net worth, of the farm owner. The owner’s equity is used by lenders and insurers to determine a farm business’ value.  There are two ways to calculate the owner’s equity, or net worth. The first simply subtracts the liabilities from the assets:

Assets – Liabilities = Owner’s Equity

The second calculation adds the owner’s equity with liabilities to determine the assets:

Liabilities + Owner’s Equity = Assets


Terms of assets and liabilities

Beyond the broad categories of either an asset or liability, a balance sheet categorizes items into “time compartments” or terms of useful life. Useful life is a term for the amount of time an item can be utilized for the farm business. Depreciation allocates the cost of this asset over its useful life. Both assets and liabilities can be categorized into current, intermediate, and long, or fixed, terms of useful life.

Assets – Current assets can be converted to cash in one year or less. Common current assets are cash, growing crops, harvested crop inventory, market livestock, accounts receivable, and other similar items. Intermediate assets have an assumed useful life or depreciable value of one to ten years. Common intermediate assets are breeding livestock, machinery and equipment, titled vehicles, and not-readily-marketable bonds and securities. Long term, or fixed, assets are typically permanent items with value—depreciable or not — for more than 10 years and include farmland, buildings, farmsteads, and other similar items.

Liabilities — Current liabilities are obligations that are due and payable in the next twelve months. Most common current liabilities include accounts payable (bills), credit card bills, operating lines of credit, accrued interest, and the current portion of principal on loans due this year. Intermediate liabilities are obligations that due to be paid back within one to ten years and are usually associated with intermediate farm assets on the left side of the balance sheet. Common intermediate liabilities are the principal remaining on machinery and equipment loans or breeding livestock purchases. Finally, long term, or fixed, liabilities are debts with terms greater than ten years like the principal balance remaining on a farmland or building mortgage.


Assets: Market value vs. cost value

Market value — Today’s market values minus selling costs are used to determine market value. For example, a fully depreciated 15-year-old tractor certainly has a current market value greater than zero. A realistic current market value for this tractor can be obtained with an appraisal, or by looking at current sales of similar tractors online. Similarly, farmland bought 30 years ago likely has a different current market value today. In general, lenders may prefer the use of current market values in a balance sheet for asset valuation.

Cost value — The net book value, or the cost of the item minus accumulated depreciation, is the cost value. For example, a fully depreciated 15-year-old tractor has a cost value of $0 in a cost based balance sheet. No appraisal is needed; only record the cost minus accumulated depreciation. Farmland (a non-depreciable, long term asset) purchased 30 years ago has a balance sheet value of the purchase cost.  In general, accountants prefer cost value balance sheets as a more clear reflection of business success, based on business decisions rather than inflation, depreciation, or appreciation of investments.

In a precisely completed balance sheet, the cost value and the market value columns usually produce different total asset values.


Keys to completing the balance sheet

Several keys can help farmer improve their accuracy, effectiveness, and efficiency for completing year-end balance sheets.

  • Complete the balance sheet on the same date each year, usually as of Dec. 31. The information will never be more accurate than immediately after the end of the year.
  • Inventory all assets, including standard weight and measure units (ie. Lbs, head, bushels, bales, etc).
  • Utilize current market prices for crop and livestock inventories.
  • Calculate cost value for growing crops.
  • Include government payments and insurance indemnities yet to be received in accounts receivable.
  • Apply conservative breeding livestock values, avoiding large year-to-year changes.
  • Maintain a separate, easy-to-update depreciation schedule for depreciable assets.


Balance sheet tools

Balance sheet ratios to evaluate financial health

The scorecard uses these three accounting statement to determine financial ratios and measurements to benchmark a farm operation against acceptable industry standards.


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  1. This is a well written article about balance sheets. Winter, especially around the end of the year(as suggested), is a really good time to fill out balance sheets because it will help farmers to remember when to do it each year. This is also a good time because there are not as many crops to tend to as there are in the spring and summer time.

  2. Balance sheets can sometimes be a less than ideal way to spend your day. That’s why as a business owner, you have better ways to spend your time. There are professionals out there who are anxious to do the balance sheets for you.

  3. Balance sheets are easy to forget about while tending to your businesses needs. This is a job that your small business can hire an accountant to tend to for you. There are accounting people out there who would be very happy to take care of your balance sheets and any other accounting needs you and your business may need.

  4. If you own a business, do not neglect your balance sheets. There are an important and necessary part of knowing where your business stands financially. Some may say that it is a good idea to complete a balance sheet every month just to have accurate information. Your accountant can help you to determine what would be best for you and your business.

  5. Winter is a great time to do balance sheets for ANY type of business. It helps to address what your business owes and owns. Balance sheets keep track of your business’s financial standing at any given time. They may be out of the comfort zones of some business owners. If that is the case, there are businesses that provide bookkeeping services to take the some pressure off of others.

  6. I am a small business owner and I can’t always find the time to do the balance sheets. I want to focus on what I have to do in order to grow my business into a big success. I decided the smart thing for me to do is to hand the balance sheets off to someone who specializes in them. There are such people!

  7. Small businesses need all the help they can get to become profitable and successful. Balance sheets can be a real hassle for most small business owners. As a small business owner myself, I have found it to be incredibly helpful to hire a professional to handle the balance sheets. I can rest assured that this aspect of my beloved business is well tended.

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