The financial position and performance of a farm business can be summarized by four important financial statements. The relationship of these statements is illustrated below. Information from these statements can be used:
- to make important financing and investment decisions
- to substantiate credit applications
- to derive performance measures for analyzing the farm business
- to develop budgets for planning purposes
The major statements and their purposes are as follows:
Net Worth Statement - Summarizes the property and financial assets owned, the debts owed, and the net worth of the business at a point in time
Net Income Statement - Summarizes the income generated, the expenses incurred, and the net income earned by the business during a period of time.
Statement of Cash Flows - Summarizes all the sources and uses of cash by the business during a period of time.
Statement of Owner Equity - Shows how net worth changedfrom the beginning to the end of the year.
Forms for preparing each of these statements are found in this bulletin. Several supplemental schedules also are provided, on whichassets and liabilities can be listed and subtotals of their values carried forward to the statements. Most of the information can be taken from the same sources used to prepare your income tax return, plus a listing of assets owned and liabilities owed.