What is the Net Worth report
The ASIC MoneySmart website suggests that the Net Worth report is a financial report that helps you assess if your total assets outweigh your debts. The Net Worth report also helps outline the strength of your current financial situation. In this article, we are discussing the topic from the small to medium size business perspective. We will not be talking about analysing large corporate annual reports although there is a lot to be gained from learning this skill.
The Net Worth is not a Balance Sheet, however it does appear on most Balance Sheets. The difference between the Net Worth report and the Balance Sheet is that the Net Worth report is an assessment document used as a statement of position whereas the Balance Sheet follows a strict formula predominantly meeting compliance requirements.
The Net Worth report is of particular interest to the lending institutions when assessing security backing for an application for a loan. In the Phoenix Farm Business Management Suite, the Net Worth report lists assets and liabilities from the following sources:
· Reconciled account balances
· Customer and Supplier accounts
· Asset and liability accounts
· Physical accounts
The report shows the cash at the bank, current assets and long-term assets at the top of the report, and moves to the current and long-term liabilities at the end of the report.
Note: The Net Worth report shows your true net worth only if you record all of your assets (at market value) and liabilities, and the balances are current.
In the Phoenix Financial software, Accounts with a credit balance are listed on the asset side while accounts that are overdrawn appear on the liability side.
A benefit you won't get from mainstream accounting packages for the farming sector are Physical accounts. Physical accounts set-up as Commodity and Livestock accounts list the quantity and values of any commodity or livestock on hand.
Fixed Asset accounts record your capital assets such as house, car, land and machinery and are purchased to be used in the operation of the business but not for resale in the same way livestock and commodities are. Current assets are those for which the future benefit to the business will be realised within a short period of time, usually the normal operating cycle of the business. Long term assets are those where the future benefit to the business won’t be realised until beyond a year or the normal operating cycle of the business. The values shown for all assets and physical accounts should be realistic market values and not depreciated taxation values. They should also be reviewed on a regular basis or when an up to date statement of position is required. Taxation values usually do not allow you to show your true net worth.
If Customer and/or Supplier accounts are used the balance of the sub-accounts is shown.
From the total assets and liabilities the percentage of equity and net worth are calculated as per the accounting equation:
Assets - Liabilities = Owner's Equity (Net Worth)
Using Phoenix, where sub-accounts are included, the total value for Physical sub-account is displayed along with the number or quantity on hand and the individual valuation.
How to find and generate the Net Worth report in the Phoenix Farm Business Management Suite
The value of the Net Worth report
The true value in the report is knowing exactly where you are financially at any given time. Therefore, the first person to benefit from the Net Worth report should be the person managing the business. The business consultants and accountants will also gain benefit from the report. The accountant's level of interest will vary depending upon whether their focus is on compliance or business management. As previously stated earlier in this document the lending institutions are clear benefactors of a well compiled Net Worth report.
To download a trial copy of Phoenix Farm Business Management suite or to explore it in the cloud please visit the Try Now page on our website.