afm03 - Farm Management Chapter 3 Acquiring and Organizing...

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Farm Management Chapter 3 Acquiring and Organizing Management Resources
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farm management chapter 3 2 Chapter Outline Purpose and Use of Records Farm Business Activities Basic Accounting Terms Options in Choosing an Accounting System Basics of Cash Accounting Basics of Accrual Accounting A Cash Versus Accrual Example Farm Financial Standards Council Recommendations Output from an Accounting System
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farm management chapter 3 3 Chapter Objectives 1. To appreciate the value of establishing a good accounting system 2. To discuss some choices for the accounting system 3. To outline the concepts of cash accounting 4. To present concepts of accrual accounting 5. To review some recommendations of the Farm Financial Standards Council 6. To introduce some financial records
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farm management chapter 3 4 Purpose and Use of Records 1. Measure profit and assess financial condition 2. Provide data for business analysis 3. Assist in obtaining loans 4. Measure the profitability of individual enterprises 5. Assist in the analysis of new investments 6. Prepare income tax returns
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farm management chapter 3 5 Measure Profit and Assess Financial Condition These are among the most important reasons for keeping records. Profit is estimated by developing an income statement, the topic of chapter 6. The financial condition is shown on the balance sheet, the topic of chapter 5.
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farm management chapter 3 6 Provide Data for Business Analysis Use the information from the balance sheet and income statement to perform an in-depth analysis. Analysis of past decisions is useful for making current and future decisions.
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farm management chapter 3 7 Assist in Obtaining Loans Lenders require financial information about the farm business to assist them in their lending decisions. Following the farm financial difficulties during the 1980s, many agricultural lenders are requiring more and better records. Good records increase the odds of getting a loan.
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farm management chapter 3 8 Prepare Income Tax Returns Internal Revenue Service (IRS) regulations require keeping records for tax purposes. Tax records are often inadequate for management purposes. Sound record-keeping can also help reduce income tax obligations.
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farm management chapter 3 9 Farm Business Activities Production Activities Investment Activities Financing Activities
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farm management chapter 3 10 Figure 3-1 Farm business activities included in an accounting system
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afm03 - Farm Management Chapter 3 Acquiring and Organizing...

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