Growing crops on a balance sheet represent crops that are currently in the process of growth and development but have not yet been harvested.
These crops are still attached to the land or are in the early stages of maturation.
In This Section
What are Growing Crops?
Growing crops, also known as crops in the field, refer to agricultural plants that are in the process of growth and development but have not yet reached maturity or been harvested.
These crops represent a critical asset for a farm, as they are the result of ongoing agricultural activities and investment.
Growing crops are typically classified as current assets on a farm balance sheet if they are expected to be harvested within the farm’s operating cycle.
Types & Examples of Growing Crops
Crop inventory on an agricultural balance sheet may include include:
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Row Crops: This includes corn, wheat and soybeans which may be growing in the field.
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Fruits and Vegetables: Expecting to be harvested in the future.
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Timber: Any tree derived products which are in the process of maturing. Timber growing crops may remain on this line item for many years due to the long production cycle of timber.
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Crop Products: Cotton, hemp, flax or other crop derived products which will be harvested in the future.
Growing Crops on the Balance Sheet
Growing Crops are considered a current asset and are expected to be sold and converted to cash in the coming year.
Conceptually, this is similar to the inventory account for Work In Progress, because these crops are currently in the production cycle, have value associated with the asset and are expected to be sold at some point in the future.
Growing crops are typically included as a separate line item apart from crop inventory as these crops are not yet mature and ready to sell.
Purpose of Growing Crops
For many producers, crop operations drive a high-proportion of their income. As such, it is important to track growing crops as this represents the total amount of future sellable product that the producer current owns. Eventually, growing crops will be converted to Crop Inventory at harvest and made available for sale.
Understanding the producer’s current growing crops is a crucial part of any agriculture operation as this indicates whether there will be enough sellable product in the future to cover operating expenses, debt repayment and owner withdrawals for living expenses.
A deep understanding of growing crop is also an important component of a company’s liquidity management strategy. By tracking growing crop levels on the balance sheet, businesses can assess their future ability to meet customer demand and manage cash flow effectively. Sold crops may be reinvested in the operation in the form of cultivating new fields and crops, purchasing new equipment, buildings or real estate, or enabling the producer to take a distribution to cover personal expenses.
How to Record Growing Crops on Balance Sheet
Growing crops on an agricultural balance sheet is typically valued on a balance sheet at its cost or market value. As the crops mature and are harvested, their value is realized, and they may be sold or further processed for sale. Here’s how it’s generally done:
- Cost basis: Crop inventory is initially recorded at its cost, which includes all costs directly attributable to bringing the crop to its present location and condition. This includes expenses such as seed, fertilizer, pesticides, irrigation, labor, and other direct production costs.
- Market value: If the market value of the crop is lower than its cost, the inventory is written down to its market value. Market value is determined based on factors such as current market prices for similar crops, expected selling prices, and any costs necessary to complete the production process and sell the crop.
- Net realizable value: Alternatively, crop inventory may be valued at the net realizable value, which is the estimated selling price less any costs of completion, disposal, and transportation. This method is often used when the net realizable value is lower than the cost but higher than the market value.
It’s important to note that crop inventory valuation methods may vary depending on accounting standards, industry practices, and specific circumstances.
Exclusions from Growing Crops on the Balance Sheet
When preparing a farm balance sheet, it is important to ensure that a proper accounting of the crop inventory takes place to avoid mis-stating the actual value of crop inventory.
The most common exclusions to crop inventories include:
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Growing Crops: Crops which are still in the process of cultivation and maturing should not be considered a part of crop inventory. Rather, these should be classified as growing crops on the balance sheet.
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Perennial Crops Not Ready for Harvest: Perennial crops (such as orchards or vineyards) that are not yet producing harvestable goods are usually excluded from crop inventories. These are often capitalized as long-term assets until they begin producing.
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Future Crops (Unplanted Crops): Crops that have not yet been planted or for which the planting process has just begun are excluded. Only crops that have been planted and are actively growing or have been harvested are included.
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Consumables and Supplies: Items such as seeds, fertilizers, pesticides, and other farming supplies are not included in crop inventories. These are typically classified under supplies or prepaid expenses until they are used.
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Post-Harvest Losses: Any losses due to spoilage, pests, or damage that occur after the harvest but before the crops are sold are excluded from crop inventories. These losses are accounted for as expenses.
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Sold Crops: Crops that have already been sold, even if they are still physically on the farm awaiting delivery, are not included in crop inventories. The revenue from these sales is recorded as accounts receivable or cash, depending on payment status.
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Leased Crops: If the farm is leasing crops to another entity or has sold crops under a consignment agreement, these crops are excluded from the farm’s inventory once control has transferred to the lessee or consignee.
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Processing and By-products: Crops that have been processed into other products (e.g., corn processed into ethanol) and by-products of crop processing (e.g., corn husks) are excluded from crop inventories. These are categorized based on their specific nature, such as finished goods or raw materials.
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