balance sheet

Question 1

what is balance sheet?

Answer 1

A financial report that provides a summary of a business’s position at a given point in time including its;

Assets
Liabilities
Total or net worth

Question 2

ASSETS

Answer 2

Anything that has value

Assets are items owned by the business, whether fully paid for or not.

E.g. inventories, equipment..etc.

Question 3

Types of Assets,TYPES OF LIABILITIES

Answer 3

a. CURRENT ASSETS
Assets with lifespan less than one year

Cash, inventories, feed, fertilizers

b. INTERMEDIATE ASSETS
Assets with life more than one year and less than 10 years
Office inventorys(tables, computers)

c. FIXED ASSETS
Assets with lifespan more than 10 years

Land, equipment

types of liabilities
a.CURRENT LIABILITIES
-Payable within 1 year
b. INTERMEDIATE LIABILITIES
-Payable < 10 years &
> than one year
c.INTERMEDIATE LIABILITIES
-Payable < 10 years &
> than one year

Question 4

OWNERS’ EQUITY

Answer 4

• Owners’ equity, which is also sometimes called net worth is the difference between total assets and total liabilities
  Owner Equity = Assets – Liabilities

Question 5

USES OF BALANCE SHEET

Answer 5

Solvency: measures relative relationships among assets, liabilities and equity to assess “health” of firm (financial ratios)

Question 6

Financial records

Answer 6

The balance sheet summarizes the asset values, the liabilities, and the net worth position of the business;

the income statement summarizes cash receipts, expenses, and inventory schedules; and

the cash flow statement provides an overview of the business’s cash flow including debt payments, family living expenses and income taxes.

Question 7

Important financial records for farm management

Answer 7

Liquidity i.e. ability of the farm to provide enough cash to pay for its operating debts and other commitments as and when they occur.

2. Profitability i.e. the ability of the farm to make enough income that would cover operating costs and other commitments and leave a surplus for the farmer’s management and risk taking.
3. Solvency i.e. ability of the farm to pay its debt if it closes down.

Therefore, the most useful financial records are:

a) The Cash Flow Statement (to measure liquidity)

b) The Income or Profit and Loss Statement (to measure profitability)

c) The Balance Sheet (to measure Solvency).