Livestock products are any type of product derived from animals that is intended for resale. These are a major source of income for many farmers and ranchers. Any farmer or rancher that holds livestock products should look to include livestock products on the balance sheet.
In This Section
What are Livestock Products?
Livestock products refer to the various goods derived from domesticated animals raised on a farm. These products can be categorized into primary and secondary products, each contributing significantly to the agricultural economy and the farm’s financial health.
Livestock products on an agricultural balance sheet represent the value of any product derived from animals which are held for resale at a point in time in the future. Livestock products could be considered a form of inventory. Livestock products are considered a current asset on the balance sheet, since these are usually (but not always) expected to be sold for cash within the coming year.
Types & Examples of Livestock Products
Livestock products can generally be classified as either primary or secondary products. Primary livestock products are the main outputs directly obtained from the animals. Secondary livestock products are by-products or additional outputs derived from the primary processes.
Common examples of livestock products include, but are not limited to:
Meat
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Beef: From cattle.
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Pork: From pigs.
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Lamb/Mutton: From sheep.
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Poultry Meat: From chickens, turkeys, ducks, etc.
Milk and Dairy Products
- Milk: From cows, goats, sheep, or other dairy animals.
- Cheese: Produced from milk through fermentation and coagulation.
- Butter: Made from milk fat.
- Yogurt: Fermented milk product.
- Cream: The rich, fatty part of milk.
Eggs
- Chicken Eggs: Most common, but also eggs from ducks, quail, and other poultry.
Wool and Other Fibers
- Wool: From sheep.
- Mohair: From Angora goats.
- Cashmere: From Cashmere goats.
Other Livestock Products
- Leather: Made from the hides and skins of animals.
- Gelatin: Derived from the collagen in animal bones and skins.
- Tallow and Lard: Rendered fats from cattle and pigs, respectively.
Livestock Products on the Balance Sheet
Livestock products are a form of inventory held for sale to buyers. These are classified as a current asset since these products are most often sold within a short period of time.
Usually, livestock products will be found grouped with the general area as other inventory products. Due to the unique nature of livestock products and how these assets are tracked and classified, these are typically held within a distinct account and not within a more generic Inventory account.
Purpose of Livestock Products
For many producers and ranchers, livestock derived products represent a high-proportion of their income. As such, it is important to track livestock product inventory as this represents the total amount of sellable product that the producer current owns which can be sold in the market.
Proper inventory management is a crucial part of any agriculture operation and understanding inventory is also critical in understanding operational efficiency and how quickly inventory turns.
Livestock products can be converted into cash through sales, making it an important component of a company’s liquidity management strategy. By tracking inventory levels on the balance sheet, businesses can assess their ability to meet customer demand and manage cash flow effectively. Sold livestock products may be reinvested in the operation in the form of purchasing and raising new livestock, purchasing new equipment, buildings or real estate, or enabling the producer to take a distribution to cover personal expenses.
How to Record Livestock Products on Balance Sheet
To record livestock products on a farm balance sheet, a preparer will generally use production records or a physical count of livestock product inventory to assess the total value of the products.
Once a count of the inventory is ready, the preparer then must choose the appropriate valuation method to enter into the balance sheet.
- Market Based Value: Livestock products are valued at their current market prices. This means the products are valued based on what they could be sold for at the time the balance sheet is prepared. Market prices can fluctuate due to factors such as supply and demand, seasonal variations, and market trends. The market value approach provides a more accurate reflection of the actual worth of the products if they were to be sold immediately.
- Cost Based Value: Alternatively, livestock products can be valued based on the cost incurred to produce them. This includes expenses such as feed, veterinary care, labor, and other direct costs associated with raising and maintaining the livestock. The production cost approach provides a measure of the resources invested in producing the products rather than their potential market value.
Depending on the specific circumstances and accounting practices of the farm or agricultural business, either approach may be used to value livestock products on the balance sheet. It’s essential to maintain consistency in valuation methods from one reporting period to another for accurate financial analysis and decision-making. Additionally, disclosure of the valuation method used should be included in the balance sheet’s notes or accompanying financial statements for transparency and clarity.
Click Here to Learn More About Valuation Methods on Farm Balance Sheets
Exclusions from Livestock Products on the Balance Sheet
Frequently Asked Questions
When preparing a farm balance sheet, certain items are typically excluded from the category of livestock products to ensure accurate and transparent financial reporting.
The most common exclusions from Livestock Products which should be reclassified are:
- Livestock Products Not Yet Processed: Raw by-products that have not yet been processed into usable or marketable forms (e.g., raw hides before tanning) are excluded. These may be classified as raw materials or intermediate goods.
- Non-Marketable Products: Any products that do not meet market standards or cannot be sold (e.g., spoiled milk, diseased animals) are excluded from livestock products. They are written off or recorded as waste.
- Future Production: Expected future production (e.g., anticipated milk yield from cows, future wool shearing) is not included. Only products that have been produced and are ready for sale are counted.
- Internal Transfers: Products used internally within the farm for further processing or other farm operations are not included in livestock products. For example, milk used to feed calves on the farm.
- Consumables and Feed: Feed, supplements, and other consumables used for raising livestock are not included in livestock products. These are classified as supplies or prepaid expenses.
What is the Difference Between Primary and Secondary Livestock Products?
The distinction between primary and secondary livestock products lies in their directness and purpose in relation to the main outputs from livestock farming.
Primary livestock products are the main outputs directly obtained from the animals. These products are usually the primary reason for raising the livestock and are typically the most valuable and significant contributors to a farm’s income.
Secondary livestock products are by-products or additional outputs derived from the primary processes. These products are often less significant in value compared to primary products but can still contribute substantially to the farm’s revenue and sustainability.