Farm Financial Statements

1
Farm Financial Statements

• Net Worth Statement v
• 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

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Statement of Cash Flows
6
Chart of Accounts Detail

• 101 Corn sales
• 102 Hog sales
• 110 USDA payments
• 201 Machinery sales
• 301 Operating loan received
• 410 Nonfarm interest earned

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Chart of Accounts Detail

• 112 Soybean seed
• 131 Cash rent paid
• 210 Hog equipment purchase
• 333 Cow loan payment (principal only)
• 42 Family 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
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Cash Outflows Operating Expense Capital
Assets Seed, fertilizer, chem. 21,540 Machiner
y purchase 0 Crop insurance premium 0 Combine
purchase 0 Fuel and oil 3,832 Hog facilities
purchase 0 Custom machine hire 9,525 land
purchase 0 Machinery repairs 1,158 Cash
rent 0 Principal paid Feeder cattle
purchased 92,400 operating 10,000 Grain
purchased 45,886 cattle 162,000 Hay and
supplement 31,126 machinery 24,600 Veterinary
and health 10,250 combine 0 Hauling,
commission 7,200 swine facilities 0 Boars,
gilts purchased 1,600 emergency
loan 1,101 Property tax 5,506 land 10,000 I
nsurance on bldg., mach. 1,148 Building
repairs 675 Nonfarm Utilities 5,900 Family
living expenses 30,000 Hired labor 3,000 Incom
e tax paid 0 Grain storage 0 Interest
paid 28,809 Total cash outflow 507,257
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Summary Cash on hand, Jan. 1 16,261 Total
cash inflow 522,574 - Total cash outflow
507,257 Cash remaining, Dec. 31 31,578
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Net Farm Income Statement(Profit and Loss
Statement)

• Total Income
• - Total Expenses
• Net Farm Income

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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)
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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).

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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.

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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
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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)

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Capital Assets

• Accrual adjustment to intermediate and long-term
  assets is made through
• Depreciation expense

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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)

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Cash Income /- adjustmentsminusCash Expenses
/- adjustments equalsNet Farm Income from
Operations/-Capital gains (or
losses)equalsNet Farm Income
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Net Worth and Net Farm Income
Ending Net Worth
Beginning Net Worth
Net Farm Income
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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)

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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)

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Statement of Owner Equity for Year 3 Farm Number
150
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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)

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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

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Double-Entry Example

• Harvest grain and sell it
• Increase Grain Sales account (income)
• Increase Cash on Hand account (asset)
• Buy skid loader for cash
• Increase Machinery account (asset)
• Decrease Cash on Hand account (asset)

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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)