Econ Module 6.2 Flashcards
Written statements or collection of facts and figures on a subject for a definite purpose
Farm Records
Written financial statements which are integral parts of a well-organized farm record
Farm Accounts
Distinguishing feature of accounts
Money values
Types of farm records and accounts based on form
single entry form
double entry form
Farm records that are the kind kept by most small Filipino farmers. Each transaction is entered into only one account, which supplies specific information regarding the business’ operations.
Single entry form
Type of farm records that are used in standard business accounting. Rules and procedures are well-established.
Double entry form
These are used to evaluate the financial performance of an individual enterprise or the whole farm. They are also used for cash flow analysis.
Financial Records
They include the primary cash transactions like income and expenses of the farm business. Purchases and payments can be recorded on one page, and receipts and sales can be recorded on another.
Financial Records
2 kinds of financial records
Farm Income records and Farm Expense records
Types of Farm records and accounts based on functionality (2)
- Financial Records
- Physical Records
Type of farm records and accounts that complement the financial records and are essential to answer questions about technical relationships and resource allocation.
They show the quantities of inputs used and outputs obtained. They also indicate the timing and methods of operations.
Physical Records
Physical record that give a record of the location, size of the farm, soil types, land use, and possibly, past soil treatments
Farm maps
Physical record that show inputs used and output realized
Crop records
Physical records that include feeds records, production records, etc.
Livestock records
Physical records like machine logbooks, labor records, pest and disease control records, marketing records, rental records, etc.
Other specialized records
Principles of Farm Record (6)
- Accurate and filled in as soon as possible
- Neat and written clearly
- Complete - does not leave out any information
- Simple in design - should be easy to keep and retrieve
- Easy to analyze
- Appropriate
It is a detailed list of all properties with values assigned to them both at the beginning and end of the accounting period. It is often referred to as the property list.
The Farm Inventory
Method of asset valuation that uses current or actual purchase price.
This method is most appropriate for items with short life span like farm supplies, fertilizer, chemicals, feeds, seeds, containers, veterinary medicines, and the like.
Original cost or market value
Method of asset valuation that is used for purchased items that do not change value within a year. A very good example is the value of land.
Normal market value / Average selling price of an item for a certain number of years
Method of asset valuation that is applied for items consumed in the farm at the time the inventory is taken, like home-grown feeds, crops, and livestock set aside for home consumption.
Present market value
Method of asset valuation that is used for farm products sold or about to be sold or commodities primarily held for sale using net selling price computed as selling price minus marketing cost.
This can be used for items like crops and livestock sold or to be sold, culled animals, stored crops, and crops consumed at home.
Net selling price
Method of asset valuation that is used for items that do not have market values, but certain values are assigned to them to estimate their contributions to the enterprise.
An excellent example is the labor done by the operator and his family. No cash amount is involved
Imputed value
Often its value is based on the prevailing wage rate in the community. If labor is hired, they are paid in cash, and the actual cost is used in valuation.
Imputed Value
This method can be used for farm buildings, farm machinery, tools and equipment. and purchased breeding stocks. Each year, the item’s value is reduced by the amount of depreciation for that year. Therefore, the current period’s value is equal to the original cost less the accumulated depreciation from the purchase year to the present time.
Original cost less depreciation
This is used for properties whose values considerably change from year to year. The original value is arrived at by estimating the cost to replace the property at current prices.
Replacement cost less depreciation
This is based on the theory that the purchase of a property is, in reality, the purchase of future income. The value of the asset under this method is contingent upon the probable amount of income.
Income capitalization
Formula for Income capitalization
ICV = V0 + (Rn / (1+i)^n)
where
ICV = Income Capitalization Value
V0 = Present Value of the Property
Rn = Expected Income per Year
i = Interest rate
n = number of years
It is the decrease in value of durable properties or working assets due to normal wear & tear, aging and technical obsolescence, and effect of the elements.
Depreciation
It is computed when you want to allocate the initial cost of long-term asset across the useful life you give it.
Depreciation
Land does not depreciated.
True or False?
True
Assets that depreciate
- Machinery
- Equipment
- Building
- Irrigation wells
- Drainage
All costs paid for the asset, including price, taxes, delivery and installation feeds, expenses to get the asset into use.
Cost (Acquisition Cost)
The number of years that you expect to use the asset in your business.
Useful Life (Life Span)
Expected market value of the asset at the end of the assigned useful life
Salvage Value (Scrap Value)
The asset’s original cost less accumulated depreciation
Book value
The asset’s total depreciation over its useful life
Cost - Salvage Value
3 methods of calculating depreciation
- Straight line method
- Declining balance method
- Sum-of-the-years digits method
The simplest method to use when calculating depreciation
Straight-line method
Straight line method formula
Annual depreciation = (Acquisition cost - Scrap value) / Life span
It is a way of charging depreciation that tends to conform to the decline in resale value. However, instead of having the property assessed, a fixed percentage is charged every year for depreciation. A constant percentage is charged against the diminishing balance of the property.
The Declining Balance method
Formula of declining balance method
Annual depreciation = Book value x Depreciation Rate
If it is desired that depreciation expense must be distributed such that more value is charged during the early years of use than in later periods, then this method is recommended.
This method avoids an undistributed balance at the end of the life span of the property.
Sum-of-the-year’s=digits method
Formula for Sum-of-the-year’s-digits methods
Annual depreciation = ((Acquisition cost - scrap value) x Life span) / Sum of the year’s digits of life span
The process of considering what crops to grow, in what quantity, and in what order, what building, labor, and power to be acquired.
Farm planning
The process of estimating farm inputs or expenses and allocating resources to different activities in the plan, and estimating outputs or production, and net returns.
Farm budgeting
The budget provides the basis for the plan.
True or False?
False.
The plan provides the basis for the budget.
The plan evaluates the budget.
True or False?
False.
The budget evaluates the plan.
The plan provides the basis for the budget. On the other hand, the budget evaluates the plan.
True or False?
Truethefire
Types of farm planning and budgeting (4)
- Enterprise budgeting
- Whole-farm planning and budgeting
- Partial budgeting
- Cash flow budgeting
It presents estimates or projections of receipts (income), expenses (costs), and profits in the production of agricultural products.
Enterprise budgeting
It will enable the farmer to evaluate the potential profitability of each enterprise in the farm business, and the proper enterprise mix for the farm can be achieved.
It will also allow producers to evaluate options before committing their resources to the various enterprises.
Enterprise budgeting
Each type of crop or livestock that can be grown on the farm is an enterprise.
True or False?
True
It is a summary of the production to be carried out on the entire farm and the resources needed to do it.
Whole-farm plan
It is used in assessing the economic viability of component technology.
In this case, only the expected changes in cost and return associated with the alteration of existing technology are considered.
Partial Budgeting
It is used to test the profitability of some farm practices which may affect various parts of the farm business but does not call for a complete farm reorganization.
Partial Budgeting
It is a summary of a farm’s projected cash inflows and cash outflows associated with a particular farm plan, over a given period of time.
Cash flow budget
Its purpose is to estimate the amount and timing of future borrowing needs and demonstrate the farm’s ability to repay debts in a timely fashion.
Cash Flow Budgeting
Completing the cash flow budgeting allows farm managers and owners to plan the cash flow by documenting where and when funds need to cover expenses and, funds are expected from farm sales.
okay sige
It is the too for measuring capital position
Balance sheet
It represents a financial snapshot of the business at a specific point in time.
Systematic listing of everything owned and owed by a business / individual
Gives statement of owner equity at a point in time.
Measures of capital position
The Balance Sheet Equation
Assets = Liabilities + Owner’s Equity or Net Worth
- Cash
- Inventory
- Equipment
- Buildings
- Breeding stock
Assets
- Accounts payable
- Bank loans
- Mortgage payable
- Notes payable
Liabilities
- Retained earnings
- Investor’s equity
Owner’s Equity / Net Worth
Formula for net worth
NW = Total Assets - Total Liabilities
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