Income Statement Chapter 6

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

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.

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

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.

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.

Income Statement Expenses Cash Non Cash Cash and Non Cash Expenses Payment for fertilizer, seed, feed, fuel, market livestock Non Cash Depreciation, accounts payable, accrued interest There is also an adjustment for prepaid expenses

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.

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