Income Statement

1
Income Statement

• Chapter 6

2
Income Statement

• 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

• Revenue-
• 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.
• Given that
• 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

• Expenses
• Cash and Non Cash Expenses
• Cash
• Payment for fertilizer seed feed fuel market
  livestock
• Non Cash
• 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
• Total Revenue
• Less Total Expenses
• - Equals net farm income farm operations
• Plus or minus gain/loss on sales of capital
  assets
• - Equals net farm income