Business of Accounting

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2. • A balance sheet or commonly called “net worth
statement” is a snapshot of a financial situation that
lists assets, liabilities, and net worth.
• The accounting equation states that net worth = assets –
liabilities.
• A balance sheet is further divided into current
assets, current liabilities, non-current assets, and
non-current liabilities in order to analyze a farm or
ranch financially
What is a Balance Sheet?
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3. Balance sheet classification:
Overview
• Assets
• Probable future economic benefits obtained or controlled by a particular
entity as a result of past transactions or events.
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4. Liabilities
Probable future sacrifices of economic benefits arising from
present obligations of a particular entity to transfer assets or
provide services to other entities as a result of past transactions
or events.
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5. Owners’ Equity
The residual interest in the assets of an entity that remains after
its liabilities are deducted.
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6. WORKING CAPITALANALYSIS
Current assets
Less: Current liabilities
Equals:Working Capital
Current assets
Current liabilities
= Current Ratio
(Working Capital Ratio)
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7. FORMULA OF BLANCE SHEET
• Current liabilities
• Long-term debt
• Other liabilities • Preferred and
common stock
• Additional paid-in
capital
• Retained earnings
ASSETS LIABILITIES EQUITY= +
• Current assets
• Property, plant and
• equipment
• Investments
• Other assets
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8. Example:
• Examples: debtors, inventory, bank.
• Non current assets are assets that take longer than 12 months
to be converted to cash. Examples: vehicles, furniture, plant
and equipment, investments, goodwill.
• Current liabilities are debts that must be repaid in less than 12
months. Examples: bank overdraft, creditors.
• Non current (deferred) liabilities are debts that take longer
than 12 months to repay. Examples: Mortgage and other long
term loans.
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9. Layout of a balance sheet (T format)
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