As people who live in rural areas, we are all use to the potholes that jar our vehicles and rattle our teeth. Likewise, the financial statements that measure the position and performance of our dairy businesses have potholes too that are sometimes difficult to navigate.

The Balance Sheet is a financial statement that measures the financial position of the business at a point in time.

The income statement is one of the four primary farm business financial statements. Its purpose is to measure profits and financial performance of the farm business.

The farm financial model offers a linear and circular process for informed decision-making. Records feed into reports, and reports help farmers integrate financial sense into farm production decisions.

Farming is a complex business which demands accurate records and careful financial management.

An accounting system is a set of actions and methods designed to collect, store, and process financial transactions into management reports for decision-making.

The balance sheet is a report of the farm business’ financial position at a moment in time. It lists assets, liabilities, and net worth (owner’s equity), and represents a snapshot of the farm business as of a certain date.

The income statement is a report of the farm business’ financial performance during a given time frame. It measures profit or loss in a given time period.

The statement of cash flows tracks the sources and uses of cash in the farm business in the past year. It also adds insight to the understanding of financial position and performance of the farm business.

The statement of owner equity reconciles the change in equity from the beginning balance sheet to the ending balance sheet for the farm business. Also known as the statement of net worth, shows the source of change.

The cash flow budget is a valuable planning tool for the farm manager. It enables the manager to know and plan borrowing needs and investment opportunities throughout the year. With a cash flow budget, the manager has an initial cash position for each time period. It can also serve as a communication tool to share with a lender to set up a line of credit, make capital investments, or perhaps discuss the reduction of debt.