Key Terms Glossary for Agricultural Economics

A comprehensive set of flashcards covering essential terms and concepts from Agricultural Economics.

Comparative advantage

The comparison of the performance level of a farm business to the performance level of other similar farms in the same area or to other established standards.

Diversification

The production of two or more commodities for which production levels and/or prices are not closely correlated.

Farm

Any business entity that sold, or would have sold in a normal year, $1,000 or more of agricultural products.

Farm management

The process of making decisions about the allocation of scarce resources in agricultural production to meet management goals.

Financial resources

Monetary assets available to a business that contribute to its operation, growth, and sustainability.

Human resources

The people that work for a business and contribute to its success by bringing skills, knowledge, and experience.

Physical resources

Material assets a business needs to grow or manufacture products and deliver services.

Precision agriculture

A production system using global positioning equipment to precisely apply different levels of inputs to different locations in a field.

Specialty products

Products that have unique characteristics or brand identifications which cannot be easily substituted.

Strategic alliance

An agreement among multiple individuals or businesses for the purpose of obtaining economic advantages.

Strategic management

The process of charting the overall long-term course of the farm or ranch.

Tactical management

The process of making and implementing short-term decisions that keep the farm moving toward its long-term goals.

Technology

A particular system of inputs and production practices.

Undifferentiated products

Products that are intrinsically identical and can be easily substituted by products from other suppliers.

Vertical integration

A contractual or other business arrangement involving two or more stages in the production of a commodity.

Account payable

An expense that has been incurred but not yet paid.

Account receivable

Income that has been earned but for which no cash payment has been received.

Accrued expense

An expense that has been incurred and accumulates over time but has not yet been paid.

Custom Hire

An arrangement in which an operator performs one or more operations for someone else for a fixed charge.

Debt

An obligation to pay, such as a loan or account payable.

Expense

Cost incurred in the process of producing a commodity.

Financial statements

Documents relating to the financial condition of a business such as an income statement or statement of cash flows.

Interest

The amount paid to the lender for the use of borrowed money.

Loan

A transaction where money is borrowed to finance new investments or pay for production activities.

Mortgage

A legal agreement by which a lender receives the right to acquire a borrower's property if the repayment schedule is not met.

Prepaid expense

A payment made for an input or service prior to the accounting period in which it will be used.

Principal

The amount borrowed, or the part of the original loan that has not yet been repaid.

Real estate

Land or assets permanently attached to land.

Revenue

Payments received from the sale of products and services.

Transaction Journal

A record of all financial transactions, including dates, payees/payers, amounts, and descriptions.

Asset

Physical or financial property that has value and is owned by a business or individual.

Balance sheet

A financial report that summarizes the assets, liabilities, and equity of a business.

Current asset

Assets normally used up or sold within one year.

Current liability

Liabilities normally paid within one year.

Current Ratio

The ratio of current assets to current liabilities (a measure of liquidity).

Debt To Asset Ratio

The ratio of total liabilities to total assets (a measure of solvency).

Liabilities

A financial obligation (debts) that must be paid at some future time.

Net worth

The difference between the total value of the assets of a business and the total value of its liabilities.

Noncurrent asset

Assets normally owned or used up over a period longer than one year.

Noncurrent liability

Liabilities normally paid over a period longer than one year.

Owner equity

The difference between the value of the assets owned by a business and the value of its liabilities.

Liquidity

The ability of a business to meet its cash financial obligations as they come due.

Ratios

Numerical values that provide a standard procedure for analysis and comparison.

Solvency

The degree to which the liabilities of a business are backed up by assets.

Working Capital

The difference in value between current assets and current liabilities.

Accounting period

The period over which accounting transactions are summarized.

Accrual accounting

An accounting system that recognizes income when it is earned.

Cash accounting

An accounting system that recognizes income when it is received.

Cash expense

Expenses that require the expenditure of cash.

Depreciation

An annual, noncash expense to recognize the loss of value due to use, age, and obsolescence.

Gross revenue

The total of all the revenue received by a business over a period.

Income

The economic gain resulting from the production of goods and services.

Income statement

A report that summarizes the income and expenses of a business over an accounting period.

Inventory schedule

A complete listing of the number, type, and value of assets owned at a point in time.

Loss

A financial result that occurs when expenses exceed revenue.

Net Farm Income (NFI)

The difference between gross revenue and total expenses.

Net Farm Income from Operations (NFIFO)

The difference between gross revenue and total expenses, not including gain or loss on sale of capital assets.

Noncash expense

Expenses that do not involve the expenditure of cash.

Profit

Total revenue minus total expenses.

Profitability

Extent to which the value of income derived from resources exceeds their cost.

Acceleration factor

A value used to determine annual depreciation using the declining balance method.

Accumulated depreciation

The sum of all depreciation taken on an asset from time of purchase.

Annual depreciation

The amount of total depreciation calculated for a single year.

Book value

The original cost of an asset minus total accumulated depreciation.

Capital asset

An asset expected to last through more than one production cycle.

Capital gain

The amount by which the sale value of an asset exceeds its cost.

Capital loss

The amount by which the sale value of an asset is below its cost.

Cost

The price paid for the asset, including all directly related expenses.

Declining balance method

A depreciation method that results in high depreciation in the early years.

Depreciation

The process used to spread the cost of an asset over its useful life.

Half-year convention

Allows a half year of depreciation in the year an asset is purchased.

Partial-year depreciation

Depreciation for an asset purchased during the year, prorated by time owned.

Salvage value

The market value of a depreciable asset at the time it will be sold or removed.

Straight-line method

A depreciation method that results in equal depreciation for each year.

Useful life

The number of years an asset is expected to be used in a business.

Amortized loan

A loan scheduled to be repaid in a series of periodic payments.

Balloon payment loan

A loan amortization method where a large portion of the principal is due at the final payment.

Capital

A collection of physical and financial assets that have market value.

Credit

The capacity or ability to borrow money.

Down payment

The portion of the cost of purchasing a capital asset financed from owner's equity.

Fixed interest rate

An interest rate that stays the same during the repayment period.

Installment loan

A loan repaid by a series of payments scheduled over time.

Installment purchase contract

An agreement allowing purchase by making installment payments.

Lease

An agreement allowing a person to use another's property for a rental payment.

Line of credit

An agreement allowing a lender to transfer loan funds to a borrower as needed.

Marketing loan

A loan that can be obtained using stored grain as collateral.

Secured loan

A loan backed by collateral, allowing seizure of assets if not repaid.

Self-liquidating loan

A loan repaid from the sale of assets purchased with the loan funds.

Unsecured loan

A loan without collateral, where no assets are pledged.

Variable interest rate

An interest rate that can change during the repayment period.