Farm Income and Costs: Glossary

Farm Business Balance Sheet

The farm business balance sheet accounts assess the wealth (equity) of the farm sector. The balance sheet consists of the assets, debt and equity—where equity equals assets minus debt.

What is a farm?

• A farm is any place from which $1,000 or more of agricultural products were sold or normally would have been sold during the year.

What is the date for which the farm business balance sheet is calculated?

• The balance sheet lists assets, debt, and equity in the farm sector as of December 31 or as close to that date as the data will allow.

How does the farm sector balance sheet differ from individual or corporate balance sheets?

The balance sheet of the farm sector differs in two important respects from an individual or a corporate balance sheet.

• Unlike other balance sheets, the farm sector balance sheet lists all assets at the current market value instead of the book value or the initial purchase price. Therefore, the values of the farm sector balance sheet cannot be compared with those of accounts using book values.

• Most balance sheets include only those resources held by an individual or corporation, but the farm sector balance sheet includes all farm assets and debt regardless of ownership.

What does the farm business balance sheet include?

• The farm sector balance sheet contains only farm debt and assets, including farmland normally used to produce agricultural products.

• The balance sheet excludes nonfarm assets owned by farm households, such as stocks, bonds, and other assets.

• The balance sheet excludes assets and debt of agribusiness firms that supply inputs or market or process farm products and the value of machinery leased to farmers by agribusiness firms. Leased machinery is considered an asset of the service input sector (payments for the flow of services from leased machinery are an expense in the farm income account). However, farm machinery owned by a farm operator and leased or contracted to another operator is part of the balance sheet.

• Broilers are not part of the balance sheet because they are mainly owned by processing firms. The land, buildings, and machinery used in raising broilers and either owned by the farm operator or leased from a nonfarm landlord are farm assets on the balance sheet.

• The balance sheet excludes certain nonfarm debts of farmers and investors and debt owned by individuals, partnerships, and corporations that are part of the input supply, processing, distributing, or marketing functions of the farm sector.

• The farm sector balance sheet account separates assets and debt directly involved in agricultural production from assets and debt of farm households. The farm business balance sheet account excludes the value of assets and debt associated with farm operator dwellings.

• The balance sheet of the farm sector includes assets and debt of operators and nonfarm landlords. However, because it excludes nonfarm interests, it is not a consolidation of the balance sheets of all individual farm operators and landlords.

What farm financial information is contained in the balance sheet? How is it useful?

• The balance sheet provides an estimate of the value of the physical and financial assets in U.S. agriculture.

• The balance sheet is also useful in estimating the volume, value, and kinds of physical and financial resources that are available for agricultural production, or that could be released for nonfarm purposes.

• The balance sheet, by providing measures of the assets and equity of the farm sector, is essential in estimating the profitability and efficiency of farm firms in the aggregate. Aggregate profitability measures combine income statement and balance sheet data in the calculation of rates of return to assets and to equity. Efficiency measures relate output per dollar of assets used in production.