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Agriculture for Secondary Schools

If total liabilities exceed the assets, the difference between total liabilities and assets
is entered as net loss on the assets’ side, in the row below total assets in Figure 15.2.
In such a state, the business is said to be insolvent, means that, it cannot be able to
pay all its debts. If the value of assets exceeds the value of liabilities as the one in
Figure 15.2, the business is said to be solvent. This means that the business is able

to pay all its debts and still have a balance, that is, net worth. The net worth is also
called net capital or owner’s equity.

Note: The opening and closing net worth statements for consecutive accounting
periods of a particular business have to be compared so as to find out whether
the owner’s equity is growing. It is also worth to note that the details for
items in each asset/liability (particularly in accounts receivable, inventory,
accounts payable, taxes payable and loans outstanding) in the sample net

worth statement in Figure 15.2 have been omitted for simplicity purpose, but
it should be shown when working with actual enterprise.

Application of financial record analysis in farming business

Generally, based on farm financial record analysis at present and to the next
accounting period, you can obtain several basic information to work with so as to
manage your farm enterprise(s). This information is summarised in Table 15.2.

Table 15.2: Basic information from farm financial records analyses

S/N At present accounting period During next accounting period
1. How much do you sell? If your profit is increasing

2. How much do you spend? If your expenses are increasing
3. Where do you spend it on? If your asset values are increasing
4. How much profit do you make? Where you are spending more money
on

5. How much are your assets worth? Where you are spending less money on
6. How much do you owe other If your debt is increasing
people or businesses?
7. How much do other businesses or If your business is improving in terms
people owe your business? of increasing sales, profits and net worth

Generally, when information in financial analysis tools is properly developed,
maintained and categorised, it will enable you as commercial farmer as well as other
interested parties to achieve the following:

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