Livestock Economics, Marketing and Business Management

BALANCE SHEET - MEANING

• Balance sheet is a statement that gives the assets and liabilities together with a statement of net worth of a farm/firm at a particular point of time.

Assets

•  It is defined as anything of value that can be owned. Assets can be classified into three types

Fixed Assets 

•  Cannot be converted into cash to meet any current obligation. (Eg.Land, Building etc.)

Working Assets 

•  Are normally used during the life of business.

Current Assets

•  May be liquidated within the normal operation of business. (E.g. Cattle feed, Bank deposit, Inventory, Debtors, Market securities etc.)

II. Liabilities

• It is defined as claim by other against the farm business. It can be classified as three types.
  • Long term Liabilities 
    •  do not require repayment during the accounting period (above 7 years). (E.g. Long term loan)
  • Medium term Liabilities
    •  Can be postponed for the present but fall due within certain years (1-7 years).
  • Short term Liabilities 
    •  fall for immediate payment generally within one year and which cannot be postponed. (E.g. Accounts payable, taxes payable, interest payable etc.)

III. Net Worth

• Total Assets - Total Liabilities.
  • When the value of the asset is greater than that of liabilities, the farmer is considered as credit worthy; the new worth is stated on the liabilities side of Balance Sheet.
  • The Balance sheet can be used to measure the ability to meet cash commitments without disrupting the ongoing business.