Fiscal Policy Basics
What is revenue?
Answer: Money earned from sales.
In cash accounting, when is revenue recorded?
Answer: When money is received.
What is an operating budget?
Answer: A budget for day-to-day expenses.
What does an income statement show?
Answer: Revenue, expenses, and net profit/loss over time.
What is a tax write-off?
Answer: A deduction that lowers taxable income
What are expenses?
Answer: Costs associated with production.
In accrual accounting, when are expenses recorded?
Answer: When they are incurred, regardless of payment.
What is a capital budget?
Answer: A budget for long-term investments like land & equipment.
What does a balance sheet show?
Answer: Assets, liabilities, and equity at a given point in time.
What are two examples of tax deductions?
Answer: Charitable donations & business/work expenses.
What are assets?
Answer: Items of value owned by a business.
Which system is better for small farms?
Answer: Cash accounting (simpler to manage).
Name one benefit of budgeting.
Answer: Helps manage expenses, plan for growth, and ensure profitability.
What is Green Acres Farm’s total assets?
Answer: $523,000.
What is depreciation?
Answer: The loss of value of an asset over time
What are liabilities?
Answer: Debts and obligations a business owes.
Which system is better for large agribusinesses?
Answer: Accrual accounting (more accurate financial tracking).
Which budget type includes equipment purchases?
Answer: Capital budget.
How do you calculate net income?
Answer: Total Revenue - Total Expenses.
A farmer buys a tractor for $50,000, expected to last 10 years, with a salvage value of $5,000. What is the annual depreciation?
Answer: ($50,000 - $5,000) ÷ 10 = $4,500 per year.
What equation determines equity?
Answer: Equity = Assets - Liabilities.
A farm orders seeds in January but pays in March. Under cash accounting, when is this recorded?
Answer: March, when payment is made.
What should be included in an operating budget? (Name two things)
Answer: Fixed costs (rent, salaries) & variable costs (materials, marketing).
What is the total percentage of liabilities to assets at Green Acres Farm?
Answer: (Total Liabilities ÷ Total Assets) × 100 = (212,000 ÷ 523,000) × 100 ≈ 40.5%.
A business owner builds a warehouse for $30,000 with a 15-year lifespan and a $3,000 salvage value. What is the annual depreciation?
Answer: ($30,000 - $3,000) ÷ 15 = $1,800 per year.