Overview
A balance sheet is a snapshot of your farm's financial health at a specific point in time. It's like taking a step back to see the full picture of your farm — not just the money in your bank account or livestock you own, but everything that adds value to your farm, as well as what you owe.
A balance sheet is divided into three main parts:
Assets - These are all the tangible things you own, from money in the bank to the value of the land you built the farm on.
Liabilities - These are debits and obligations you have like credit card balances, operating lines of credit, or longer term loans like a mortgage.
Equity - This is what’s left over when you subtract liabilities from assets. If you've ever wondered, 'If I sold everything today and paid off all my debts, what would I have left?' — equity is the answer.
Some reasons that keeping a balance sheet is important are:
Securing Loans - Lenders will often ask to see your balance sheet as a way to assess your business’s health, and possibly to secure loans against the value of your assets.
Making Informed Decisions - Seeing a complete picture about how much money you owe, both short and long-term, can be critical in making decisions concerning cash flow.
Planning for the Future - Whether it's expanding your farm, investing in new technology, or saving for lean times, a balance sheet gives you a clear foundation to build on.
Peace of Mind - Knowing exactly where you stand financially can reduce stress and help you sleep better at night, knowing you're on top of your farm's finances.
Types of Balance Sheet Accounts
The Settings -> Balance page will be where you manage all items in your Chart of Accounts that are not Incomes or Expenses. At the highest level, Ambrook has two kinda of Balance Sheet Accounts
Connected Accounts
When you sign up for Ambrook the first thing you do is connect your checking and credit card accounts, which automatically sync to the app daily. These will either appear in the “Banks & Cash” section of your Assets or the “Credit Cards” section of your Liabilities - depending on the type of account you linked.
After you set these connections up - we recommend you reconcile monthly to make sure no transactions are missing. If you find that any transactions are missing during reconciliation, you can add them manually using the Transaction Import feature.
You can manage your connected accounts to Ambrook at any time by going to Settings -> Connections and selecting the “New” button at the top-right hand part of the screen.
Manual Accounts
For any of your balance sheet accounts that are not checking or credit cards (e.g. fixed assets, loans, or equities) you will need to create a “manual account” on Ambrook. Because these accounts are not synced automatically, transactions need to be added to them manually. To create a manual account you go to Settings -> Balances and select the “New Manual Account” option on the right-hand part of the screen.
When you create a manual account on Ambrook there are several inputs that are required and will impact how an account shows up on your balance sheet:
Account Type - This is where you determine what type of account you are creating. The options are grouped into the five main sections of the balance sheet:
Current (short-term) Assets
Long-term Assets
Current (short-term) Liabilities
Long-term Liabilities
Equities
Account Name - This determines how the account will appear on your balance sheet.
Opening Date - This is the date that the account will first appear on your books in Ambrook. The recommended opening date to use is different for different types of accounts:
For assets - You should use the date an asset was purchased or transferred to you.
For liabilities and equities - You should use the date that you want your books to officially begin on Ambrook. These types of accounts often change month to month, so it’s important to pick the first date you will have transactions you actually plan to tag in Ambrook.
Opening Balance - This is the balance of an account on the opening date you selected for it.
For an existing asset this would be the purchase price on the date you purchased it.
For existing liabilities and equities this should be the balance of the account for the first month you plan to tag transactions in Ambrook. This ensures that as you tag your loan payments [link] each month your balance sheet will reflect the amount you still owe.
For a new asset or a new liability that you’ve purchased since joining Ambrook, you should set the opening balance to zero.
Frequently Asked Questions:
Why do I set the opening balance for accounts to zero when creating new assets and liabilities?
When you create a new account on Ambrook there are typically a series of transactions around that event.
For, if you purchased a vehicle, there should be a withdrawal on your bank account or a new liability created for a loan.
Your balance sheet accounts should get their values from those transactions, as opposed to having an opening balance set, which creates Opening Balance Equity [link to generated accounts article].
If you aren’t sure that you are accounting for assets or liabilities correctly, we recommend getting in touch with an accountant.
How do I make sure I’m correctly entering balance sheet information from a previous bookkeeping software?
One place many people find information about their assets is their tax return, where depreciable assets and their cost basis are typically filed.
Ambrook can help you make sure you’ve entered in balance sheet information correctly - use the Support chat if you want to review it with one of our team members.
What does the “direction” mean when I’m creating an account?
You only need to worry about the “Direction” field if you’re creating an account that has a negative balance, like Accumulated Depreciation.
In double entry bookkeeping different account types are either “debit normal” or “credit normal”. The type of normal for an account determines how debits and credits on a journal entry impact the balance.
For a debit normal, debits increase the balance and credits decrease it. For a credit normal account the inverse is true.
For more information on account normals read here.