Farm Business Management

Annual percentage Rate

annual interest rate expressed on an annual basis. Also called the effective rate.

Annuities

stream of payments or dividends over time that are earned from an investment

Balance Sheet

financial statement of equity for an individual/business for a specific point in time. List of assets (current or non-current) and liabilities (current or non-current) of an individual or business. assets - liabilities = owner equity/net worth/net gain or loss

Bond

an interest-bearing certificate of debt or bondholder

Certificate of deposit

special form of savings that requires a large amount of money to be invested and requires that the deposit be left for a certain period of time

Check register

a separate form on which the account holder keeps a record of deposits and checks. It is also known as Checkbook Ledger

Checking account

bank account against which a depositor may write checks

Collateral

assets that are pledged or mortgaged to secure repayment of a loan

Compounding

Interest received from an investment. Interest is added to the principal and interest is paid again on the total sum. It is a method of calculation that can be used to determine the value

Credit

Means of obtaining goods or services now by promising to repay at a later date

Credit Unions

Cooperative association that accepts saving deposits and makes small loans to its members

Direct Deposits

Paychecks are automatically deposited into your account

Disbursement

funds paid out

Discounting

present value of a future sum accounting for the rate of compound interest. Procedure used with United States Treasury Bills that permits buyers to purchase them at a discount and ensures a specific increase in value

Dividends

return on investment

Future Value

value of an investment after it has been compounded with interest for a specified period of time (where P = principle, I = interest, n = years). FV = P(1 + I)^n

Interest

amount of funds paid to the lender for the use of money

Investment

the outlay of money, usually for income or profit

Liquidity

consisting of or capable of ready conversation to cash. Measures the ability of a business to meet financial obligations as they come due without disrupting normal ongoing operations

Market Value

The value of an asset on the open market at the present time

Maturity

Investments come due and are returned to the investor

Money market accounts

savings account that pays market rate or better interest and allows access to funds without penalty

Municipal Bonds

Long-term safe investment into city, state, school district, and so on

Mutual Funds

investors pool money together into various types of securities

Net Worth

Net ownership of and individual or business; owner's equity(see balance sheet)

Present Values

the current value of an investment after it has been discounted (where P= principle, I=interest, n=years)

Principal

Amount of money borrowed or invested

Profit

the difference between income and expenditures; net income

Risk

relates to the chance that the investor might lose the invested funds. Always present, varies by degree of probability and is linked closely to feasibility and profitability. There is a risk that there may not be a profit and there is usually a risk that a plan may not be executed as planned. Risk is calculated by solvency ratios from information found in the balance sheet

Savings account

account on which interest is paid on funds deposited by the account holder

Stocks

Transferable certificates representing partial ownership in a corporation

Tax

compulsory charge that is levied by a federal, state, or local unit of government against income or wealth for the common good

Time value of money

amount that money increases/decreases through time depending on the many alternative uses

Treasury bills

short-term investment into United States Treasury. Sold to investor at a discount—lower cost than return

Treasury bond

interest-bearing investment into United States Treasury

Treasury notes

large amounts of funds, low risk, high return investment with the United States Treasury

ACRS

Accelerated Cost Recovery System: More depreciation is charged to the earlier years of the life of the asset

Acquisitions

Purchase (or receiving) of goods

Asset

Anything of value owned by a business or individual

Capital

Cash or liquid savings, machinery, livestock, buildings, and other assets that have a useful life of more than one year meet a specified minimum value

Capital gains

The income gain that results from selling a capital asset for more than its adjusted basis (cost less depreciation)

Cash accounting

a method of accounting where income is credited to the year it was received and expenses are deducted in the year they are paid (see also accrual accounting)

Consumable supplies

supplies and material used in production

Depreciable assets

assets that are vital to the business and lose value over time to wear or obsolescence

Depreciation

the decrease in value of business assets cause by wear and obsolescence

Depreciation methods

formula for depreciating assets (e.g., cost minus depreciation; straight-line; accelerated cost recovery system; modified accelerated cost recovery system)

Estate tax

tax on the total amount of property left by a person who dies

Financial statement

lists assets and liabilities of a business at a specific time

Fiscal year

any accounting period that consists of twelve successive calendar months, fifty-two weeks, or thirteen four-week periods. Most businesses use January 1 through December 31

Income statement

a summary of revenues and expenses over a given period of time

Inventory

listing and valuation of all business assets

MACRS

Modified Accelerated Cost Recovery System: cost of assets recovered over 3-, 5-, 7-, 10-, 15-, 20-, 27.5-. Or 31.5-year period, depending on the type of property and the statute for that type of property. For method of depreciation, see ACRS

Non-depreciable assets

assets that do not depreciate or are not kept for over one year; or are not valued at $100.00 or more

Owner equity statement

a financial equity statement of a business for a specific point in time. Also called owner equity (see balance sheet)

Salvage value

value of an asset at the end of its useful life (e.g., value of machinery for parts)

Straight-line depreciation

original cost of asset - salvage value/useful life

Useful life

number of years an asset is expected to be valuable to the business

Balance sheet

financial statement of equity for an individual/business for a specific point in time. List of assets (current or non-current) and liabilities (current and noncurrent) of an individual or business. assets - liabilities = owner equity/net worth/net gain or loss (see net worth statement)

Current assets

assets that are used or sold within the year

Current liabilities

liabilities that are payable within a year

Current ratio

Extent to which current assets would cover current liabilities. It is computed by dividing current assets by current liabilities

Debt

liabilities against a person or business

Debt-to-asset ratio

computed by dividing total liabilities by total assets. It measure the proportion of total assets owed to creditors

Debt-to-equity ratio

also called the leverage ratio, it reflects the extent to which debt capital is being combined with equity capital. Dividing total liabilities by owner equity is the formula for this ratio

Equity

net ownership of a business. It is the difference between the assets and liabilities of an individual or business as shown on the balance sheet or financial statement (assets - liabilities = owner equity)

Equity-to-asset ratio

The proportion of total assets financed by owner equity capital. Owner equity divided by total assets obtains this ratio, which is sometimes referred to as the percent ownership ratio

Feasibility

The capability to execute a plan successfully. It is determined by measuring a business's liquidity and repayment capacity. The statement of cash flows is closely related with feasibility

Financial efficiency

measures the degree of efficiency in using labor, management, and capital

Liability

money, goods and/or services that are owed

Non-current assets

assets not sold, converted into cash, or used up within the year

Non-current liabilities

liabilities not due within the year. Formerly classified as intermediate (one to ten years) and non-current (more than ten years)

Owner equity

assets minus liabilities

Profitability

measures the extent to which a business generates a profit or net income from the use of labor, management, and capital. It is also the ability to retain earning and owner equity growth. A business can survive, compete, and progress if its profitability is at a successful level. Profitability and financial efficiency of the business are criteria usually found in an income statement

Repayment capacity

measures ability to cover term debt and capital lease payments

Solvency

describes a business in sound financial condition that is able to pay all its liabilities

Statement of cash flows

arranges information into operating activities, investing activities, and financing activities. The sum of the net cash flows is the change in cash during an operating period

Statement of owner equity

the firm's check on accuracy at a point in time. It verifies that the base financial statements are in agreement and it depicts where changes in owner equity occur

Working capital

amount of funds available after sale of current assets and payment of current liabilities. It is calculated by subtracting current liabilities from current assets

Accounts payable

unpaid bills or debts

Accrual accounting

income is reported in the year earned and expenses are deducted or capitalized in the year incurred. Method of accounting used to compute earnings to be reported to the Internal Revenue Service. Accrual accounting includes: increases and decreases in inventory; annual income and expenses; and complete inventory (see cash accounting)

Accrued interest

amount of interest that would be due if the note was paid off on the date the statement is prepared. Interest built up over time

Accrued taxes

amount of tax liability that would be due if the taxes were paid on the date the statement is prepared. Taxes build up over time

Expense

cost of goods or services involved with producing a product or service

Income

payment received from goods or services, can be cash or noncash

Net income

revenue minus expenses. Calculated by matching revenues with the expenses incurred to create those revenues, plus the gain or loss on the normal sales of capital assets. See also profit

Revenue

income to the business from the sale of goods ro services or changes in inventory. It consists of the proceeds received or value created from current business operations

Unused supplies

supplies and materials used in production that were not consumed during the current year

Cash flow statements

projected business payments and receipts associated without particular business plan

Expenditure

payment or expense incurred

GAAP

Generally Accepted Accounting Principles (GAAP) are accounting guidelines that are used as standards in the financial world

Receipt

a document, usually a single sheet of paper, that acknowledges the receiving of goods, money or services

Additions to paid-in capital

investments from personal accounts, stocks, or other nonbusiness generated sources

Budget

formal written or unwritten plan that projects the use of assets for a future time

Cash flow

receipts and disbursements within the business, determines the cash flow budget

Cash flow budget

statement of projected expenses and receipts associated with a particular farm/business plan

Cost behavior

how a cost responds to changes in production volume

Enterprise budget

a full income statement is presented for one segment or part of a business (e.g., production of a specific item)

Fixed costs

costs that remain mostly constant as production changes within a relevant range.

Goals

definite statement that identifies activities, enterprises, or other achievable levels that you aspire toward

Income statement budgets

three types of budgets can use the income statement format, partial, enterprise, and whole business