Welcome to Financial Accounting for Agricultural Producers

1. Welcome to Financial Accounting for Agricultural Producers AGR 216

2. General Information • As the name implies, this is a course in accounting for agricultural producers • Other basic accounting courses at ISU: • ACC 131 Financial Accounting • ACC 132 Managerial Accounting

3. General Information • Concepts learned in ACC131 & 132 may be applied to farm businesses • Concepts learned in Financial Accounting for Agricultural Producers may be applied to non-farm situations

4. General Information • What is accounting? The keeping or inspecting of commercial accounts as they relate to the financial flow of business and its strategic applications as derived from a company’s financial plan and current financial position. The control mechanism by which businesses make sure their finances are on the right track.

5. General Information • What is accounting? An information system designed to provide financial information about an economic entity (from textbook)

6. General Information • Farm accounting is measuring and recording in a systematic way: • All farm resources • All business transactions having financial consequences

7. General Information • Cash accounting • Historical method of choice for farmers • Accrual accounting • Becoming more common among farmers

8. General Information • Managerial accounting • Seldom used by the “average” farmer • Tends to be utilized by large farms • Guidelines developed by Farm Financial Standards Council (FFSC) • CD available for purchase http://www.ffsc.org • Managerial accounting is taught in AGR 312

9. Question & Answer • Q. Is a previous course in accounting required for this course? • A. No. There is no prerequisite in the undergraduate catalog.

10. Question & Answer • Q. Is this course easier if I have had a course in accounting? • A. Probably.

11. Lessons from This Course • It takes time to learn a new bookkeeping/accounting system. • Error-free farm accounting is difficult to achieve. (Farmers do not have a key with the correct numbers!)

12. Lessons from This Course • Records sufficient to complete & document tax forms are required for every farm in the U.S. • Some individuals should pay others to complete accounting tasks

13. Lessons from This Course • Knowledge gained from this course may be useful for: • small business financial management • personal financial management • Ability to work with numbers is beneficial in many ways http://www.youtube.com/watch?v=Bfq5kju627c

14. Farmer/rancher • Professional farm manager • Farm financial consultant • Ag lender • Suppliers of ag credit • Tax preparers • Ag accountants

15. Financial/accting software writers • Extension personnel • Ag teachers/professors • Bankruptcy attorneys • Estate planners • Farmland investors • Farmland lessors

16. Why financial accounting? • Determine amount of profit or loss, which influences: • Family living expenditures (or partner draws or dividends paid) • Amounts of money that can be borrowed or repaid • Amount of money that can be saved or reinvested

17. Why financial accounting? • Ascertain the total value of the farm business

18. Why financial accounting? • Determine the financial claim of the owners and the financial claims of others

19. Why financial accounting? • Source of information for farm management decisions

20. Why financial accounting? • Help detect loss or theft

21. Why financial accounting? • Tax planning and correct completion of tax forms

22. Stocks vs. Flows Concepts useful for understanding relationships among financial statements

23. Stocks vs. Flows • Stock • What you have or what exists • Measured at a point in time • Comparable to a photograph • What happened before or after photo?

24. Stocks vs. Flows • Stocks • Cattle on feed • Bushels of grain in storage • Money owed

25. Stocks vs. Flows • Flow • What you give or receive or changes that occur • Measured over a period of time • Comparable to a video http://www.youtube.com/watch?v=dGCJ46vyR9o • Shows what happened between photos • Note: accountant may have only a summary

26. Stocks vs. Flows • Flows • Cattle purchased & marketed • Grain harvested & sold • Money borrowed & repaid

27. Stocks vs. Flows Stock Flows Stock

28. Stocks vs. Flows pages 1-2 in packet

29. Stocks vs. Flows Is financial position (p. 5 in text) represented by stocks or flows?

30. Stocks vs. Flows Financial position: the farms financial state at a specified point in time

31. Stocks vs. Flows What about financial performance? How profitable the farm was over a specified period, usually a year

32. Stocks, Flows & Financial Statements • Cash budget • Balance sheet • Income statement • Statement of retained earnings (owner equity) • Statement of cash flows

33. Cash Budget Beginning cash balance Cash flows Ending cash balance

34. Balance Sheet Assets Liabilities Owner Equity Revenues Expenses Cash Flows Non-cash transactions/events Assets Liabilities Owner Equity

35. Stocks, Flows & Financial Statements See page 3 in packet

36. Stocks vs. Flows Business flows recorded in the accounting system Financing activities Investing activities Operating activities (See Table 1-1 on p. 7 in text)

37. Stocks vs. Flows Financing activities Reports the issuance and repurchase of the company's own bonds and stock and the payment of dividends (Accounting Coach)

38. Stocks vs. Flows Financing activities Capital funds acquired by the business from the owners or outside parties (includes lenders and creditors) Capital funds distributed to the owners or outside parties (includes lenders and creditors)

39. Stocks vs. Flows Investing activities Reports the purchase and sale of long-term investments and property, plant and equipment (Accounting Coach)

40. Stocks vs. Flows Investing activities Note that the purchase and sale of assets in Table 1-1 in the text should include only non-current (fixed or long-lived) assets

41. Stocks vs. Flows Operating activities Converts the items reported on the income statement from the accrual basis of accounting to cash (Accounting Coach) Excludesgains and losses

42. Stocks vs. Flows page 4 in packet

43. Accounting Standards & Accounting Guidelines • Financial Accounting Standards Board (FASB) • Generally Accepted Accounting Principles (GAAP) • Farm Financial Standards Council (FFSC) • Financial Guidelines for Agricultural Producers (See Figure 1-1 in text)

44. Financial Statements Income Statement: Summarizes the financial activities from the sale of farm products (revenues), the costs to produce and sell those products (expenses), and gains and losses during a period

45. Financial Statements Income Statement: pp. 7-9 in packet

46. Financial Statements Statement of Owner Equity: Reports the changes in the owner’s interest (financial claim) in the business during a period

47. Financial Statements Statement of Owner Equity Initial investment plus capital contributions plus retained earnings (cost basis owner equity) Valuation equity (reflects changes in market values of fixed assets)

48. Financial Statements Statement of Owner Equity: p. 10 in packet

49. Financial Statements Balance Sheet: Reports the financial position of the business on a specified date (may include nonbusiness items) Accounting equation

50. Financial Statements Balance Sheet: p. 11 in packet