Summary of revenues and expenses for a given period of time.
Purpose is to measure the difference between revenue and expenses.
Accounting Period 1 Year
Balance Sheet Jan 1 Balance Sheet Dec 31
Income Statement- Income expenses and profit for the period
3 Identifying Revenue and Expenses on an Income Statement
When was it earned what accounting period
Cash or noncash
What should be included
Cash commodity sold
Inventories (ending value beginning value)
Accounts Receivable represents earned income. Payment has not yet been received.
4 Income Statement
Revenue may be recognized in one period when payment is received in another.
When Inventory or accounts receivable is recognized as revenue it is considered Non Cash Revenue
5 Income Statement
Gain or Loss on Sale of Capital Assets
Difference between the sale price of a capital asst such as land and its cost.
For depreciated assets machinery buildings it s the difference between the sale price and the book value.
Gains or losses are only recognized when an asset is sold.
This is because it is uncertain as to the selling price or market value before that point.
6 Income Statement
Recognizing a gain adjusts for the fact that the asset was being depreciated at too fast of a rate previously.
Useful lives and salvage values or market values at the end of the useful life are only estimates at the purchase time.
There is a choice of depreciation that will impact annual depreciation.
There will generally be a gain or loss to be recognized when a depreciable asset is sold.
7 Income Statement
Cash and Non Cash Expenses
Payment for fertilizer seed feed fuel market livestock
Depreciation accounts payable accrued interest
There is also an adjustment for prepaid expenses
8 Prepaid Expenses
Seed feed fertilizer chemicals and feed purchased and paid for in December to take advantage of price discounts or income tax deductions.
This expense should be deferred until then.
Prepaid Expenses should be subtracted from this years expense but included in next years.
9 Income Statement
Income Tax- is sometimes included in making net farm income after-tax.
I. S. Format
Less Total Expenses
- Equals net farm income farm operations
Plus or minus gain/loss on sales of capital assets
- Equals net farm income
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