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