1. Alison De Marree Winter 2014

2. 1. Balance Sheet 2. Income Statement (also known as P&L: Profit & Loss) 3. Cash Flow Statement

3.  Assets (Own) = Liabilities (Owe) + Net Worth or Owner's Equity

4. Shows the value of items owned (assets), all claims against the business (liabilities) and the difference (net worth) at a point in time (snapshot) Must balance Assets(Own)=Liabilities(Owe)+Net Worth(Owner's Equity)

5. Assets Checking Account $ 5,000 Tractor$30,000 Barn & Land$60,000 Total Assets $95,000 Liabilities Accounts payable $ 3,000 Tractor Loan $12,000 Farm Mortgage $30,000 Total Liabilities $45,000 Net Worth (Assets – Liabilities) $ 50,000

6.  A ssets:  Current? (Less than 1 yr )  ?  Intermediate? ( >1yr < 10 yrs)  ?  Long Term? ( => 10 yrs)  ?  Liabilities:  Current?  ?  Intermediate?  ?  Long Term?  ?

7.  To set goals  To observe trends:  Compare business to itself  Compare to other businesses  To change the business (grow, shrink, change emphasis)  Review efficiency of investment

8.  Used to measure profit, a measure of performance, over a period of time  Profit ◦ Total value of goods and services produced minus the value of resources used in production (a residual concept)

9.  is the return to labor, management and capital inputs provided by the owner(s) / operators and families  is the total value of production minus the total cost of production  must be positive for the short-term improvement in the financial condition of the business and for long-term survival

10. Profit = Money received for apples Money owed for cabbage by restaurant Apples in storage awaiting sale Rented out bee hives for 2 weeks minus Fertilizer Consulting fees Interest payments Total value of production - Costs of Resources Hired labor

11.  Cash accounting ◦ records income when you receive it and expenses when you pay the bill ◦ ease of use for tax management purposes  Accrual accounting ◦ records income when produced, expenses when allocated to production ◦ time and effort required

12. Profit = minus Total value of production - Costs of Resources

13.  Purpose: To insure that your other financial statements are accurate!!!  Summarizes all flows of cash into the business (or family) and all flows of cash out of the business ( or family)  Covers a period of time (monthly, annually)  Has beginning and ending cash on hand (cash, checking, savings) > or = 0

14. Farm Business Beginning Cash + Cash Inflow = Cash Outflow + Ending Cash Cash Inflow Cash Farm Receipts Non Farm Income Money Borrowed Sales of Assets Cash Outflow Cash Farm Expenses Principal Payments Capital Purchases Withdrawals for Family Living Expenses

15.  Cash inflows must equal cash outflows. What about imbalances?  Debt is a major means of cash flow management ◦ change repayment rate ◦ borrow new money ◦ accounts payable  Adjustments to items and management

16.  generate more farm receipts  reduce farm expenses  pay debt more slowly, stretch out payments, etc.  reduce family living expenses (or draw)  sell farm inventory  sell capital assets  buy fewer new capital items/use credit

17.  Measuring financial condition, and performance are keys to achieving desired results  Three financial statements ◦ Balance sheet (condition, position) ◦ Income statement (performance) ◦ Cash flow statement (performance)