The Income Statement

The Income Statement

A report that summarizes the income and expenses and computes the resulting profit of a business over a period of time (e.g., the accounting or calendar year) Also known as the operating statement or a "Profit and Loss Statement"

Uses of an Income Statement

A series of income statements over a period of years tracks the profitability of a business Can point out reasons for cash flow problems Can describe changes in net worth from one balance sheet to the next While a balance sheet is a snapshot at a point in time, the income statement describes a period of time

Revenue Accounted for on the I.S.

All business revenue earned during the accounting period As with accrual accounting, revenue on an income statement is recognized when an agricultural commodity is ready for sale (rather than actually sold) including inventories, accounts receivable, and non-cash payments

Expenses

All cash and non-cash expenses that are incurred to produce revenue within the accounting period

Income Statement Format

Basic Structure: Total Revenue Less Total Expenses Equals Net Cash Farm Income Plus or minus inventory changes Plus or minus depreciation and gain or loss on sale of capital assets Equals Net Farm Income

Inventory Adjustments and Gain or loss from Sale of Capital Assets

Examine the change in inventory using beginning and ending and ad in the change in inventory if using cash (instead of accrual accounting system) The gain or loss from a capital asset is represented by the difference between the sale price and the cost of the capital asset Since deprecation is only an estimate of the actual expense from using the asset, the gain or loss should be recognized at the time of sale

Accrual Accounting

Makes adjustments to ensure that revenues and expenses reflect business activities conducted within that business year Measures business performance

Cash Accounting

Records transactions when money actually changes hands Affords tax management flexibility

Major Components of the Income Statement

Revenue Expenses change in inventory value capital adjustments

Major Purpose of the Income Statement

To measure the difference between revenue and expenses. Net farm income (NFI) = Revenues - Expenses If the difference, NFI, is positive the farm made a profit If NFI is negative, the farm had a loss

Adjustments to Cash Reciepts

change in inventory value accounts receivable

Example of Non Cash Expenses

depreciation, accounts payable, accrued interest, and other accrued expenses

Example of Cash Expenses

purchases of an payment for feed, fertilizer, seed, market livestock, and fuel

Net Farm Income

the return to unpaid operator labor, management, and equity

Adjustments to Cash Expenses

accounts payable accrued expenses prepaid expenses unused supplies investment in growing crops