SW Financial Literacy
Balance sheets need to be accurate.
The most popular date to create balance sheets is on December 31st. This makes sense because it aligns with the end of most tax years. Ironically, prepaying expenses and making tax purchases complicate creating a balance sheet on this date.
Here are some common difficulties I see with the December 31st balance sheet and how to solve them:
Unsold grain: Any unsold grain should be shown under ‘Crop Inventory’ at the price you could get from the elevator on the date of your statement. If the grain is hedged but no basis is set, subtract out the basis to get accurate figures.
Grain sold and delivered, but income deferred: If you are holding off on claiming the income until the next calendar year, the amount of the check to be received would be shown under ‘Accounts Receivable’. You would not show those bushels under ‘Crop Inventory’.
Crop insurance proceeds: Very often these have not been received or deposited yet. Talk with your agent to get the most accurate estimate possible and enter this in ‘Accounts Receivable’. After you receive the check, compare the value to what you put on your balance sheet. If it differs greatly, make corrections to your balance sheet.
Prepaid expenses: Seed, chemical, fuel, and fertilizer are very common to prepay for the next crop. If the check has cleared for these items, you want to show them under current assets, ‘Prepaid Expenses’. If the check has not cleared and it is for the next calendar year crop, you would not show the prepaid expense under current assets.
Unborn livestock: If you do spring calving and don’t have hoofs on the ground yet, they won’t go on your balance sheet. This may be the wrong time of year to update statements, and you may want to consider doing your financials after calving season to better represent your position.
Outstanding checks or drafts: Sometimes there are checks written days or weeks ago that haven’t been deposited yet. If this is for a prepaid expense, that isn’t a problem. If this is for a repair bill, old crop cash rent or similar expense, you want to make sure to show these undeposited checks under ‘Current Liabilities’.
Equipment or land purchases: Often a verbal or written agreement will be in place to buy land or equipment. If you haven’t paid (or closed on a loan) for the item, it won’t go on this balance sheet. Just make sure you remember to add it next year!
If you are uncertain about where to put something or how it should be represented, don’t leave it off your balance sheet but DO ask an expert. Good luck!
Have a great week!
Grant
All views expressed on this site are my own and do not represent the opinions of any entity whatsoever with which I have been, am now, or will be affiliated. Information provided is authentic to the best of my knowledge, and as such, is prone to errors and the absence of key details. The content of this blog is for entertainment and informative purposes and should not be seen as professional advice to finances or any other field.