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 grew from 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, where assets 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.

More detailed information can be found in the following Iowa State University Extension publications:

• Your Net Worth Statement (FM 1791/AgDM C3-20)
• Your Farm Income Statement (FM 1816/AgDM C3-25)
• Twelve Steps to Cash Flow Budgeting (FM 1792/AgDM C3-15)
• Financial Performance Measures for Iowa Farms (FM 1845/AgDM C3-55)

Tables and worksheets are presented in the accompanying "pdf" file that you can access by clicking here or on the icon above.

 

William Edwards, extension economist, 515-294-6161, wedwards@iastate.edu