fm6e-chapter06

fm6e-chapter06 - Farm Management Chapter 6 The Income...

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Farm Management Chapter 6 The Income Statement and Its Analysis
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farm management chapter 6 2 Chapter Outline Identifying Revenue and Expenses Income Statement Format Accrual Adjustments to a Cash-Basis Income Statement Analysis of Net Farm Income Change in Owner Equity Statement of Cash Flows Summary
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farm management chapter 6 3 Chapter Objectives 1. Discuss the purpose and use of an income statement 2. Illustrate the structure and format of an income statement 3. Define the sources and types of revenue and expenses included 4. Show how net farm income is computed and what it means 5. Analyze farm profitability
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farm management chapter 6 4 What is an Income Statement? An income statement is a summary of revenues and expenses as recorded over a period of time.
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farm management chapter 6 5 Figure 6-1 Relation between balance sheet and income statement
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farm management chapter 6 6 Identifying Revenue and Expenses Revenue : revenue should be recognized as soon as a commodity is ready for sale, whether or not it is actually sold Gain or loss on sale of capital assets : difference between sale price and book value Expenses : all expenses incurred in producing the revenue for an accounting period should be included
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farm management chapter 6 7 Income Statement Format Total revenue Less total expenses Equals net farm income from operations Plus or minus gain/loss on sale of capital assets Equals net farm income
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farm management chapter 6 8 Table 6-1 Income Statement Format Cash crop sales Cash livestock sales Inventory changes: Crops Market livestock Livestock product sales Government program payments Change in value of raised breeding stock Gain/loss from sale of culled breeding stock Change in accounts receivable Other farm income Total revenue Purchased feed and grain Purchased market livestock Other cash operating expenses: Crop expenses Livestock expenses Fuel, oil Labor Repairs, maintenance Property taxes Insurance Other: Adjustments Accounts payable Prepaid expenses Depreciation Total operating expenses Cash interest paid Change in interest payable Total interest expense Total expenses Net farm income from operations Gain/loss on sale of capital assets: Machinery Land Other Net farm income Revenue: Expenses:
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farm management chapter 6 9 Accrual Adjustments to a Cash-Basis Income Statement The FFSC recommends that anyone using cash accounting convert the resulting net farm income to an accrual-adjusted net farm income at the end of each year Two adjustments to cash receipts:
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fm6e-chapter06 - Farm Management Chapter 6 The Income...

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