1. Farm Financial Statements Net Worth Statement √ Statement of Cash Flows Net Income Statement Statement of Owner Equity

2. Recording Transactions in the Cash Journal Date Description Value Amount (bu., lb., etc) To (from) whom Enterprise (optional) Production period (optional)

3. Transactions can be: Receipts (cash inflows) Expenditures (cash outflows)

4. Transactions are Posted to 4 Types of Accounts Production Investment Financing Nonfarm

5. Statement of Cash Flows

6. Chart of Accounts Detail 101Corn sales 102Hog sales 110 USDA payments 201 Machinery sales 301 Operating loan received 410Nonfarm interest earned

7. Chart of Accounts Detail 112Soybean seed 131Cash rent paid 210Hog equipment purchase 333Cow loan payment (principal only) 42Family medical insurance

8. Cash Flow Summary for Year 3 Farm Number Operating Income: Borrowing: Corn Sales $ 25,200 Emergency $ 1,101 Soybean sales 23,917 Operating 10,000 Feeder cattle 90,000 Crop insurance payment 0 Machinery 0 Cattle sales 266,929 Combine 0 Hog sales 101,041 Hog facilities 0 Sow and boar sales 4,386 Land 0 Capital Asset Sales: Machinery and comb. sales 0 Carryover operating 0 Total cash inflow 522,574

9. Cash Outflows Operating Expense:Capital Assets: Seed, fertilizer, chem.21,540Machinery purchase0 Crop insurance premium0Combine purchase0 Fuel and oil3,832Hog facilities purchase0 Custom machine hire9,525land purchase0 Machinery repairs1,158 Cash rent0Principal paid: Feeder cattle purchased92,400operating10,000 Grain purchased45,886cattle162,000 Hay and supplement31,126machinery24,600 Veterinary and health10,250combine0 Hauling, commission7,200swine facilities0 Boars, gilts purchased1,600emergency loan1,101 Property tax5,506land10,000 Insurance on bldg., mach.1,148 Building repairs675Nonfarm: Utilities5,900Family living expenses30,000 Hired labor3,000Income tax paid0 Grain storage0 Interest paid28,809Total cash outflow507,257

10. Summary Cash on hand, Jan. 1 16,261 + Total cash inflow 522,574 - Total cash outflow 507,257 = Cash remaining, Dec. 31 31,578

11. Net Farm Income Statement (Profit and Loss Statement) Total Income - Total Expenses = Net Farm Income

12. Step 1. Record Cash Income and Cash Expenses from the Statement of Cash Flows =Cash Net Farm Income (do not include loans, capital assets, or nonfarm transactions)

13. Step 2: Make Accrual Adjustments at end of the Year Include income in the year it is produced (rather than in year sold) Include expenses in the year the products or services are used (rather than in year paid).

14. Accrual Adjustments to Income Add change in the value of: Crops in inventory Growing crops Market livestock in inventory Accounts receivable + Ending NW value – Beginning NW value Use values from Current Assets.

15. Profit and Loss Statement for End of Year 3 Income Total Crops Hogs Cattle Sales $421,473 $49,117 $105,427 $266,929 Ins payments 0 0 Inventory chg -46,297 21,650 1,653 -69,600 Gross income 375,176 70,767 107,080 197,329 Feed purchased -77,013 0 -42,323 -34,690 raised crops fed 30,642 -10,843 -19,800 Livestock purch -94,000 -1,600 -92,400 Value farm Prod 204,162 101,409 52,314 50,439

16. Accrual Adjustments to Expenses Change in accounts payable: = Ending value – Beginning value (from Current Liabilities) Change in expenses paid in advance: prepaid expenses supplies on hand = Beginning value – Ending value (from Current Assets)

17. Capital Assets Accrual adjustment to intermediate and long-term assets is made through: Depreciation expense

18. Capital Gain or Loss Difference between the selling price of a capital asset and its cost (depreciated) value. Can be positive (capital gain) or negative (capital loss)

19. Cash Income +/- adjustments minus Cash Expenses +/- adjustments equals Net Farm Income from Operations +/-Capital gains (or losses) equals Net Farm Income

20. Net Worth and Net Farm Income Beginning Net Worth Ending Net Worth + Net Farm Income

21. Net Worth is also affected by: Contributions of nonfarm capital (+) Withdrawals for nonfarm expenses(-) Changes in the market values of capital assets (affect market value net worth, only)

22. Statement of Owner Equity Beginning Net Worth + Net Farm Income (accrual) - Nonfarm withdrawals or + contributions = Ending Net Worth (cost value) +/- adjustments to capital asset values = Ending Net Worth (market value)

23. Statement of Owner Equity for Year 3 Farm Number 150 Cost Value Market Value Beginning farm net worth $ 520,865 $ 546,465 Plus change in market value of landXXX-6,400 Plus accrual net farm income84,671 Minus withdrawals for family living and income taxes30,000 Equals ending net farm worth575,536594,736 Change in net worth54,67148,271

24. Single and Double-Entry Accounting Single Entry: record only income and expenses Double Entry: record changes to assets and liabilities as you go (credits and debits)

25. Advantages to Double Entry Net Worth Statement is always up to date. Can check accuracy by comparing account values to actual balances and inventories. Accrual adjustments are made automatically

26. Double-Entry Example 1.Harvest grain and sell it +Increase Grain Sales account (income) +Increase Cash on Hand account (asset) 2.Buy skid loader for cash +Increase Machinery account (asset) –Decrease Cash on Hand account (asset)

27. Double-entry Examples 3. Pay back cattle loan--principal – Reduce Cash on Hand account (asset) – Reduce Bank Loan account (liability) 4.Pay electric bill – Reduce Cash on Hand account (asset) + Increase Utilities Expense account (expense)