Give an example account of Each Account Type
Asset
Resources owned.
i.e. Tractor, Land, Cash, etc
Profit
Revenues - Expenses.
Helps you determine your tax liability, determines if your business is able to re-invest in itself and be sustainable, reflects that the value of your business is more than the costs,
Farmer Joe earned $500 of watermelons by selling to Spring Creek Food Hub and receiving cash on 8/30/2023. Explain how this transaction impacts your financials.
1. Identify BOTH account names that are involved in the transaction. 2. Identify if the account(s) balance increases or decreases (for EACH accounts).
Sales - Watermelons account would increase by the $500.
Cash account would increase by $500.
Liability
Debts owed.
i.e. operating loan, tractor loan, mortgage on land
Accounting Equation
Assets = Liabilities + Equity
Is the basis for the balance sheet and this information helps assess a company's ability to pay for its near-term operating needs, meet future debt obligations, and make distributions to owners.
Farmer Riley bought a tractor for $9000 on 1/30/2023. She paid for it with a loan from the dealership. Explain how this transaction impacts your financials.
1. Identify BOTH account names that are involved in the transaction. 2. Identify if the account(s) balance increases or decreases (for EACH accounts).
Tractor account would increase by $9,000
Tractor Loan account would increase.
Revenue
Amounts earned from sales of products or services. i.e. Sales earnings from tomato sales.
Chart of Accounts
the list of all account names used to record financial transactions in your organization. In farming it is wise to base this on Schedule F line items.
Helps you organize your financial data so it can summarized into financial statements. Provides a clear overview of your business fianaces.
Farmer Jonathan purchased $250 of seeds 12/15/2023. He paid for the seeds in cash. Explain how this transaction impacts your financials.
1. Identify BOTH account names that are involved in the transaction. 2. Identify if the account(s) balance increases or decreases (for EACH accounts).
Seed Expense account would increase by $250. Cash account would decrease by $250.
Expense
Cost of selling products or services.
i.e. electricity expense, labor expense, etc
Matching Principle
report expenses in the same period as the revenues they help generate.
This principle shows the cause and effect of Expenses to create Revenue.
Farmer Ty paid her employee $2,000 for hourly wages in July on 7/31/2023.
Explain how this transaction impacts your financials
1. Identify BOTH account names that are involved in the transaction. 2. Identify if the account(s) balance increases or decreases (for EACH accounts).
(in WF Planning Tool: listed under Other Income, on WF Cash Flow)
Labor Expense account would go up $2,000
Cash Account would go down $2,000
Equity
Owners’ claim to resources, the difference between assets and liabilities.
i.e. Retained Earnings, Personal Capital Contribution (in the WF Planning Tool)
What is the main difference in the two accounting methods - cash and accrual accounting?
Timing of when revenue and expenses are recorded on your books.
Accrual accounting provides a more accurate picture of profitability.
Farmer Brooke received a check for $1,500 from NRCS for the High Tunnel Grant she was awarded on 3/1/2022. She cashed the check into her business bank account the same day.
Explain how this transaction impacts your financials, based on the assumptions in the WF Planning Tool.
1. Identify EACH account names that are involved in the transaction. 2. Identify if the account(s) balance increases or decreases (for BOTH accounts).
Grant Revenue account increased by $1,500
Cash account increased by $1,500
(in WF Planning Tool: listed under Other Income, on WF Cash Flow)
Why is financial ratio analysis important?
Ratios can be used to compare your year-to-year performance, to compare your business to similar farm businesses, to analyze the financial health of a business