Unit 4: Agribusiness Management Lesson: AM2 Agribusiness Records Unit 4: Agribusiness Management Lesson: AM2

Objectives Lesson Objective: After completing the lesson on agribusiness records, students will demonstrate their ability to apply the concept in real-world situations by obtaining a minimum score of 80% on an Agribusiness Records News Report. Enabling Objectives: Identify the use of agribusiness records, describe the three types of accounting systems, define three special journals used in agribusiness, and illustrate the double entry accounting system. Complete an income statement by identifying revenue, cash expense, and noncash expense; and calculating gross revenue, net income from operations, and net income. Complete a balance sheet by identifying assets and liabilities; calculating total assets, total liabilities, and net worth; and calculating solvency and liquidity. Complete a cash flow statement by identifying income and expenses and calculating net total and complete a cash flow statement by identifying operating, financial, and investing activities; and calculating net totals.

Key Terms Inventory Accounts receivable Accounts payable Credit Debit Income statement Balance sheet Assets Current assets Fixed assets Noncurrent assets Liabilities Current liabilities Noncurrent liabilities Long-term liabilities Net worth Cash flow statement Statement of cash flow

What Can I Learn? Why is this document important to a business? What can we learn from this document? What is this document lacking? What else would you like to know?

Agribusiness Records Monitor progress of the business Project tax liabilities Are needed to prepare Financial Statements Identify sources of receipts/revenue Keep track of deductible expenses Assist with tax preparation Support business deductions reported on tax returns

Management Accounting Accounting Systems Financial Accounting Used to determine the results of a business on a periodic basis Provides information about a business to external parties Treats money as a factor of production Cost Accounting Seeks to determine the value of direct and indirect costs involved with production Management can make informed decisions regarding improving production performance Cost is the measure of economic performance Assists in setting prices Management Accounting Used to assist and advise management in making important business decisions Makes management aware of economic implications and consequences of decisions Measures economic factors of production

Special Journals for Agribusinesses Inventory Detailed record of inventory received, inventory shipped, and inventory on hand Includes date, beginning inventory and type, amounts received, amounts shipped, and ending inventory Accounts Receivable Journal from all accounts of goods and/or services provided Includes dates of service, name, amounts, date due, and aging Accounts Payable Journal for goods and/or services received but not paid for Includes dates, to whom, amounts, date due, and aging Contracts and Market Positions Reflects contract obligations for deliveries of products or goods at future dates May include grain contracts, feed, fertilizer, or commodity positions like a hedge, options, or other market positions Details include to whom, number of contracts, dates of delivery or option months, and other contract obligation details

Credit vs. Debit Asset Accounts Liability Accounts Revenue Accounts Increases in assets recorded as debits on left side of ledger Decreases in assets are credits and recorded on right side of ledger Liability Accounts Increases in liability accounts are credits and recorded on right side of account Decreases in liability are debits and recorded on left side of account Revenue Accounts Increases in income or revenue are recorded as credits on the left side of ledger Decreases in income or revenue are recorded as debits on the right side of ledger Expense Accounts Increases in expenses are debits recorded on right side of ledger Decreases in expenses are credits recorded on left side of ledger

Double Entry Accounting Standard method of accounting that involves recording transactions in at least two accounts A debit to one or more accounts A credit to one or more accounts Provides a method of checking accuracy because the sum of all debit accounts should equal the sum of all credit accounts

INCOME STATEMENT BALANCE SHEET CASH FLOW

Generally reported on a calendared or fiscal year reporting period Income Statement Profit and loss statement, operating statement, income and expense statement Key to measuring success of a business over a certain period of time in terms of net income and profit Generally reported on a calendared or fiscal year reporting period Used in capacity analysis

Income Statement Components Sales of Gross Revenues Cost of Sales Direct costs associated with production of goods and services company sells Beginning Inventory Cost of good (direct purchases, direct labor, overhead costs) – Ending inventory

Income Statement Components cont. Selling, general, and administration expenses Operating Income Other Income (expense) Income and dividend income Miscellaneous income Gain (loss) on disposal of property and equipment Gain (loss) on disposal of investments and business units Interest expense Provision for income taxes (not actual taxes paid) Income interest in earnings (losses) of subsidiaries Net income

Preparing an Income Statement

Statement of the nature and type of resources available to a business Balance Sheet Financial statement showing assets, liabilities, and net worth as of a specific date Statement of the nature and type of resources available to a business Shows what a business owes its creditors Reveals the net worth of the business

Balance Sheet Components Assets All resources and properties owned by a business Tangible assets can be touched such as supplies, machinery, buildings Intangible assets have no physical presence, but do have value such as a franchise to operate a business under a certain name Current Assets Can or will be used or sold within one year Savings and checking accounts, accounts receivable, short-term bonds, supplies to be used within a year, equipment that will be used within a year and then sold or disposed of, inventory that will be sold and converted to cash within a year Noncurrent Assets Also known as fixed assets Will not be used or sold and converted into cash within one year Certificates of deposits and bonds that take over a year to mature, supplies that will not be used within one year, inventory that will not be sold and converted into cash within one year, vehicles, equipment, buildings, land, and breeding livestock that will not be sold within a year

Balance Sheet Components cont. Liabilities All debts owed by a business Money, goods, or services that a business owes to a creditor Current Liabilities Payable within one year Interest and principal payments due within one year on loans, interest and principal payments on charge accounts, accounts payable, payments on insurance Noncurrent Liabilities Also known as long-term liabilities Not payable within one year Interest and principal payments for loans not due within one year

Balance Sheet Components cont. Partially current and partially noncurrent A business takes out a loan to renovate a building and repay the loan over six years Loan is for $25,000 with $5,000 in interest and principal due in one year Business’s current liability with remaining $20,000 being a noncurrent liability Net Worth Owner’s equity Net ownership a sole proprietor, partnership, corporation, or cooperative has in a business Net worth = Assets – Liabilities

The way money flows into and out of a business Cash Flow Statement The way money flows into and out of a business Shows liquidity of business Helps business establish and maintain line of credit Helps determine when cash will be available for such things as purchasing capital assets and expanding the business

Statement of Cash Flows Same information needed as for cash flow statement Illustrates changes in cash or cash equivalents for a period Summarizes information from cash flow statement, showing in what areas cash inflows and outflows occur Determines where cash was generated and how it was used by business

Conclusion An income statement is a summary of a business’s income and expenses for a specific period of time. It allows a business to figure net income or net loss by finding total revenues, subtracting total cash and noncash expenses, and then adding or subtracting capital gains or losses. A balance sheet is a summary of assets, liabilities, and net worth of a business at a specific point in time. It is useful in making business decisions since it indicates the business’s current financial position. A balance sheet can also be used to measure the solvency and liquidity of a business. Cash flow is the way money flows into and out of a business. A cash flow statement summarizes the projected payments by and receipts for a business. Information from the cash flow statement is transferred to the statement of cash flows and summarized by activity to show exactly where cash inflows and outflows occur. Cash flow statements can be used to help a business determine its liquidity, gain and maintain a line of credit, and evaluate past financial practices to inform current decisions.

Exit Card What did you learn today about agribusiness records? What questions do you still have about agribusiness records?