A Positive Cash Flow Does Not a Profit Make! The Income Statement

The Accrual Adjusted Income Statement zRevenues yLivestock and crop sales yChanges in inventories yGovernment payments & other farm income yGain/loss from sale of culled breeding stock yChange in value due to change in raised breeding livestock numbers yAccrual adjustments in asset accounts

Changes in Inventories zMarket livestock zRaised crops/feed inventories

Gains/Losses on Sale of Culled Breeding Livestock zPurchased breeding stock: subtract cost basis from the sale proceeds zRaised breeding stock: subtract base value from the sale proceeds

Change in Value Due to Change in Raised Breeding Livestock Numbers zNumber of head transferring from one classification to another, e.g., replacement heifers to cows zDifferences in base values of the two classifications

Accrual Adjustments (Assets) Change in: zAccounts receivable zPrepaid expenses zCash investment in growing crops zSupplies zContracts and notes receivable zInvestment in cooperatives

The Accrual Adjusted Income Statement zExpenses yPurchased market livestock yCash operating expenses yChanges in feed inventories yAccrual adjustments for liability accounts yDepreciation yCash interest paid yChange in accrued interest

Accrual Adjustments Changes in: zPurchased feed inventories zAccounts payable zAd valorem taxes zEmployee payroll witholding zAccrued expenses zAccrued interest

Depreciation zStraight line depreciation: Cost - Salvage value Years of life zTax depreciation as a proxy

The Accrual Adjusted Income Statement zNet Farm Income, Accrual Adjusted = Gross Farm Revenues - Total Operating Expenses - Total Interest Expense +/- Gain/Loss on Sale of Farm Capital Assets

Gains/Losses on Sale of Farm Capital Assets zDifference between the value for which the items is sold and the adjusted basis (cost minus depreciation taken)

What is the effect on net farm income? zIncrease in crop inventories? zDecrease in accounts receivable? zIncrease in cash? zDecrease in accounts payable? zDecrease in prepaid expenses? zIncrease in accrued interest? zIncrease in notes payable? zDecrease in growing crops?