Financial Statements and Planning Quiz 1

Office Hours

Mondays and Wednesdays 11-2 and Tuesdays and Thursdays 12:30 - 1:30

Course learning goals

1. Accurately collect farm business records;

2. Accurately organize farm business records into financial statements

3. Demonstrate the principles of accrual accounting by opening, analyzing and entering transactions, and closing a set of double-entry accounting records

Attendance counts for how many points?

50

Late work decreases by how much each day it is late?

10%

What is financial statements and planning?

study of the principles of agricultural accounting systems and types of records, their use and how to compute and use measures of earnings and cost of production to improve agribusiness efficiency.

What are financial statements used for?

to assess a farm’s financial performance, financial position, and cash
flows.

What is an economic entity?

a business, so a farm is an economic entity

In accounting what should be treated separate from the owner’s personal transactions?

economic entities should be kept separate to ensure that the financial positions of the owner and the business remain distinct.

If the owner pays fro a private trip out of his pocket, should this appear in the financial records of the farm?

No

Financial statements are used to gain

a summary-level view of different aspects of a farm’s financial performance and condition

What are the the three financial statement reports

Income statement, Balance sheet, and Statement of cash flows

What is the Income Statement?

shows the revenues generated, expenses incurred that offset the revenue, and resulting profit or loss for the farm. Over a specific period (month, quarter, or year)

What is the balance sheet?

shows the assets, liabilities, and equity of a farm as of a specific point in time.

What is the statement of cash flows?

shows the cash inflows generated by a farm for a period of time, as well as its cash outflows.

A report that shows the revenues generated, expenses incurred that offset the revenue, and resulting profit or loss for the farm is known as

Income statement

What statements show activities over a period of time?

Income statement, cash flows statement, and statement of owners’ equity

The balance sheet show data for when?

A specific date only

What are the four main types of farm activities shown on the income statement?

Revenues, Expenses, Gains, and losses

Revenues

sales generated from the sale of farm products

Expenses

costs to produce and sell farm products, as well as other administrative costs of the farm

Gains

This is any gains generated from the sale of farm assets, such as tractor

Losses

This is any losses generated from the sale of farm assets ,such as the sale of a tractor

Profit

when its total revenue and gains are greater than its expenses and losses

Loss

The farm incurs a loss when its expenses and losses exceed its revenue and gains

Net Profit or loss =

Revenue + Gains - Expenses - Losses

Categories of the income statement

Farm revenues, Operating expenses, Operating income, other revenue and gains, other expenses and losses and net income

Farm revenues

the money generated from the sale of what a farm produces

Examples of farm revenues

The sale of crops, livestock, livestock products

Operating expenses

the cost to operate the farm

Examples of operating expenses

cost of feed, fertilizer, and the compensation paid to hired employees

Operating income

This is the difference between farm revenue and operating expenses

Operating income =

farm revenue - operating expenses

Other revenue and gains

this is all other earnings of the farm such as interest income and the gain on sale of a farm truck

Financing activities

are the costs of loans and the income from investments

Investing activities

the purchase and eventual sale of assets are considered investing activities

Other expenses and losses

this is all other expenses of the farm such as interest expense and losses on the sale of farm equipment

Net income

This is operating income, plus other revenue and gains, minus other expenses and losses

Net income =

operating income + other revenue and gains - other expenses and losses