A Positive Cash Flow Does Not a Profit Make!

The Income Statement

The Accrual Adjusted Income Statement

Revenues Livestock and crop sales Changes in inventories Government payments & other farm income Gain/loss from sale of culled breeding stock Change in value due to change in raised

breeding livestock numbers Accrual adjustments in asset accounts

Changes in Inventories

Market livestockRaised crops/feed inventories

Gains/Losses on Sale of Culled Breeding Livestock

Purchased breeding stock: subtract cost basis from the sale proceeds

Raised breeding stock: subtract base value from the sale proceeds

Change in Value Due to Change in Raised Breeding Livestock Numbers

Number of head transferring from one classification to another, e.g., replacement heifers to cows

Differences in base values of the two classifications

Accrual Adjustments (Assets)

Change in:Accounts receivablePrepaid expensesCash investment in growing cropsSuppliesContracts and notes receivableInvestment in cooperatives

The Accrual Adjusted Income Statement

Expenses Purchased market livestock Cash operating expenses Changes in feed inventories Accrual adjustments for liability accounts Depreciation Cash interest paid Change in accrued interest

Accrual Adjustments

Changes in:Purchased feed inventoriesAccounts payableAd valorem taxesEmployee payroll witholdingAccrued expensesAccrued interest

Depreciation

Straight line depreciation:Cost - Salvage value

Years of life

Tax depreciation as a proxy

The Accrual Adjusted Income Statement

Net 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

Difference 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?

Increase in crop inventories?Decrease in accounts receivable?Increase in cash?Decrease in accounts payable?Decrease in prepaid expenses?Increase in accrued interest?Increase in notes payable?Decrease in growing crops?