Farm and ranch management- quiz 1

Account Payable

An expense that has been incurred but not yet paid.
Typically items charged at farm supply stores where the purchaser is given 30 to 90 days to pay the amount due.

Account Receivable

Revenue for a product that has been sold or a service provided but for which no payment has yet been received.
Example: custom work for a neighbor who has agreed to make a payment at a future time.

Accrued Expense

An expense that accrues or accumulates daily but which has not yet been paid.
Examples: interest on loans or property taxes.

Asset

An item of value, tangible or financial.
Examples: machinery, land, bank accounts, buildings, grain, and livestock.

Credit

An accounting entry in the right hand side of a double- entry ledge.
Records a decrease in the value of an asset.
Records an increase in liability, owner equity, or an income account.

Debit

An accounting entry in the left-hand side or a double-entry ledger.
Records the increase in an asset or expense account.
Records a decrease in liability or owner equity.

Expense

A cost or expenditure incurred in the production of revenue.

Inventory

The physical quantity and financial value of products produced for sale that have not yet been sold.

Liability

A debtor other financial obligation that must be paid at some point in the future.

Net Farm Income

Revenue minus expenses.
Represents the return to the owner's equity capital, unpaid labor, and management.

Owner Equity

The difference between business assets and business liabilities.

Prepaid Expense

A payment made for a product or service in an accounting period before the one in which it will be used to produce revenue.

Profit

Revenue minus expenses and also minus opportunity costs.

Accounting Equation

Assets= Liabilities + Owner's equity

Revenue

The value of products and services produced by a business during an accounting period.
May be either cash or noncash.

Accounting Period

A period of time used to summarize revenue and expenses and estimate profit.
Can be either a calendar or a fiscal year.
Generally recommended that a firm's accounting period follow the production cycle of the major enterprises.

Current Assets

Assets that can be sold easily to generate cash are called liquid assets.

Noncurrent assets

Assets that are more difficult to sell and/or their sale would be more likely to disrupt the business.

Current Liabilities

Are financial obligations that will become due and payable within one year from the date on the balance sheet.

Noncurrent liabilities

Any liability that is not current.
These financial obligations with become due and payable some time in after one year from the date on the balance sheet.

Production Activities

These accounting transactions involve activities related to the production of crops and livestock.
Revenue from product sales or other farm revenue is included here, as are production expenses.

Investment activities

These activities relate to the purchase, depreciation, and sale of long-lived assets, such as land, equipment, or breeding livestock.
Records should include purchase date and price, annual depreciation, book value, current market value, sale date and price, and gain or loss when sold.

Financing Activities

These transactions relate to borrowing money, and paying the interest and principle on loans.
Financing activities include money borrowed to finance new investment and to finance production activities.

Balance Sheet

Report that shows the financial condition of the business at a point in time.

Income Statement

A report of revenues and expenses ending with an estimate of net farm income.

Statement of Cash Flows

Summarizes all sources and uses of cash during the accounting period.

Statement of Owner Equity

Summarizes all financial transactions during an accounting period that will affect the owner equity or net worth of a business.

Cash Accounting

A method of accounting which only records transactions when cash is spent or received.

Accrual Accounting

A method of accounting that recognizes which transitions in the accounting period when they occur whether or not cash is involved.
More accurate than cash accounting.
Is the standard of the accounting profession.