FINANCIAL STATEMENTS
Financial statements are a summarized statement of the financial status of a
business, usually prepared as a summary of accounts from the ledger. The primary
financial statements usually consist of the balance sheet and income statement. As
discussed previously, a balance sheet shows what a business owns, what it owes, and
what investment the owners have in the business. It can be likened to a snapshot that
shows the financial makeup and condition of the business at a specific point in time. The
income statement, on the other hand, is a summary of business operations over a certain
period, usually the period between the dates of two balance sheets. It could be
compared to a video of the fi rm that details the financial activities as they occurred over
a period of time. Generally, the balance sheet illustrates the current financial position of
the business. The income statement, alternatively, demonstrates financial changes
since the last time a balance sheet was prepared. The income statement is also known
as the operating statement, the profit and loss statement, or simply the P&L statement.
The length of the accounting period and the dates for issuing fi nancial statements
are particularly important in agribusinesses that are highly seasonal in nature. In most
parts of the country, fertilizer and chemical operations conduct a very large portion of
their annual business in the three to four months before and during the planting season.
For example, a balance sheet constructed just prior to the rush season is likely to show
large amounts of fertilizer on hand and little money owed by customers. If this same
statement is drawn up just after the busy season, it is likely to show less fertilizer on hand
and larger amounts of money owed by customers. Such financial statements can be very
misleading, if they are not interpreted in light of the seasonal characteristics of the
business. Consequently, the agribusiness manager must understand why variations in
financial statements are inescapable in highly seasonal agribusinesses. Previous years’
financial statements often provide a more valid comparison than a simple month-by-
month comparison.
