Table of Contents

Chapter 1 - Introduction to Agricultural Accounting. 1

A Note on Terminology. 1

The Economic Entity Concept 1

Financial Statements. 2

Format of the Financial Statements. 2

Income Statement 3

Statement of Owner’s Equity. 5

Balance Sheet 5

Statement of Cash Flows. 6

Financial Statement Disclosures. 8

Construction of Financial Statements. 8

Additional Commentary on the Financial Statements. 8

Profits vs. Cash Flows. 9

Accounting Principles. 10

The Certified Public Accountant 11

Accounting Standard-Setting Organizations. 11

Financial Accounting and Managerial Accounting. 12

Review Questions. 13

Chapter 2 - Accrual and Cash Basis Accounting. 14

Cash Basis of Accounting. 14

Accrual Basis of Accounting. 14

Accrual-Adjusted Approach. 15

Converting Cash Basis to Accrual Basis Accounting. 16

Review Questions. 18

Chapter 3 - Accounts. 19

Transactions. 19

Accounts. 19

The Chart of Accounts. 21

Account Descriptions. 23

Double Entry Accounting. 27

The Accounting Equation. 28

Journal Entries. 30

The Trial Balance. 31

Review Questions. 33

Chapter 4 - Accounting Transactions. 34

Financing Activities. 34

Owner Investments. 34

Associated Liabilities. 35

Owner Withdrawals. 36

Loans. 36

Investing Activities. 37

Asset Acquisitions. 37

Asset Sales. 37

Asset Exchanges. 38

Asset Leases. 39

Investments in Perennial Crops. 41

Operating Activities. 42

Purchases of Market Livestock and Crops. 42

Annual Costs for Producing Perennial Crops. 42

Feed Purchases. 43

Supplies Purchases. 43

Billed Expenditures. 44

Prepaid Expenses. 44

Payroll 45

Taxes. 46

Sale of Farm Products. 47

Receipt of Payment from Customers. 47

Crop Insurance Proceeds. 48

Review Questions. 49

Chapter 5 - Receivables Accounting. 50

The Billing Process. 50

The Invoice. 51

Cash Sales. 52

The Accounts Receivable Aging Report 53

Estimation of the Allowance for Doubtful Accounts. 54

Accounting for the Allowance for Doubtful Accounts. 55

The Direct Write-off Method. 56

Negative Bad Debt Expense. 57

Review Questions. 58

Chapter 6 - Investment Accounting. 59

Types of Investments. 59

Investment Classifications. 60

The Realized and Unrealized Gain or Loss. 62

Other Comprehensive Income. 62

Purchase and Sale of Investments. 63

The Gain or Loss Calculation. 63

Conversion of Securities. 64

Sale of Securities. 64

Accounting for Dividends and Interest Income. 65

Stock Dividends and Stock Splits. 65

Ongoing Accounting for Investments. 66

The Fair Value Option. 67

Review Questions. 68

Chapter 7 - Inventory Accounting. 69

Accounting for Inventory – at Period-end. 69

Summary of Inventory Valuation Rules. 72

Accounting for Inventory - Feed. 74

Purchase of Feed for Internal Use. 74

Purchase of Feed for Resale. 75

Raised Feed for Internal Use. 75

Accounting for Inventory – Crops. 76

Purchase of Crops for Resale. 76

Growing Crops. 76

Raised Crops for Sale. 77

Accounting for Inventory - Livestock. 78

Purchase of Market Livestock for Resale. 78

Raised Market Livestock for Sale. 79

Livestock Products. 79

Inventory Co-Mingling. 80

Review Questions. 82

Chapter 8 - Fixed Assets and Depreciation. 83

The Nature of Fixed Assets. 83

The Initial Measurement of a Fixed Asset 84

Lump-Sum Purchases. 84

The Purpose of Depreciation. 85

Depreciation Concepts. 85

Accelerated Depreciation. 86

Sum-of-the-Years’ Digits Method. 87

Double-Declining Balance Method. 88

Straight-Line Method. 88

Units of Activity Method. 89

MACRS Depreciation. 90

The Depreciation of Land. 91

The Depreciation of Land Improvements. 91

Depreciation Accounting Entries. 92

Accumulated Depreciation. 93

Asset Disposal Accounting. 94

Impairment Write-downs. 95

Review Questions. 97

Chapter 9 - Non-Current Farm Assets. 98

Land Development Costs. 98

Trees and Vines. 98

Intermediate-Life Plants. 99

Valuation of Raised Breeding Livestock. 99

Special Poultry Considerations. 100

Animal Cost Tracking. 100

Base Value Method. 100

Non-Current Investments. 101

Review Questions. 103

Chapter 10 - Payables Accounting. 104

Accounting for Accounts Payable. 104

Early Payment Discounts. 106

The Vendor Master File. 108

Vendor Master File Usage. 108

Supplier Naming Conventions. 109

The Payables Filing System.. 110

Government Reporting. 110

The Form 1099-MISC.. 111

Treatment of Incorrect Filings. 114

The Form W-9. 114

Review Questions. 116

Chapter 11 - Debt Accounting. 117

Basic Debt Accounting. 117

The Amortization Schedule. 119

Reconciling the Debt Account 120

Review Questions. 121

Chapter 12 - Income Taxes. 122

Overview of Income Taxes. 122

Accounting for Income Taxes. 124

Tax Positions. 124

Deferred Tax Expense. 125

Applicable Tax Rate. 126

Interim Reporting. 126

Review Questions. 128

Chapter 13 - Derivatives and Hedging Transactions. 129

The Nature of a Derivative. 129

The Nature of a Hedge. 130

Other Comprehensive Income. 130

Derivative Accounting. 131

Hedge Accounting - General 131

Hedge Accounting – Fair Value Hedges. 133

Hedge Accounting – Cash Flow Hedges. 133

Review Questions. 135

Chapter 14 - Cooperative Accounting. 136

Cooperative Accounting. 136

Inventory Accounting. 136

Earnings Allocations. 138

Loss Allocations. 139

Liabilities. 139

Presentation Issues. 139

Patron Accounting. 139

Deliveries Made to Marketing Cooperatives. 140

Inventory Delivered to a Marketing Cooperative. 140

Advances from a Marketing Cooperative. 140

Accrual of Patronage Refunds. 140

Review Questions. 141

Chapter 15 - Revenue Recognition. 142

Effects of Inventory Valuation using Net Realizable Value. 142

Government Programs. 142

Sales to Cooperatives. 142

Commodity Credit Corporation Loans. 143

Forward Contracts. 144

Review Questions. 145

Chapter 16 - Financial Statement Preparation. 146

The Accruals Concept 146

Adjusting Entries. 147

Reversing Entries. 147

Common Adjusting Entries. 148

Accrued Expenses. 148

Accrued Revenue. 149

Allowance for Doubtful Accounts. 149

Prepaid Expenses. 149

Unpaid Taxes. 149

Create Customer Invoices. 150

Reconcile the Bank Statement 150

Calculate Depreciation. 152

Close Accounts Payable. 152

Review Journal Entries. 153

Reconcile Accounts. 153

Close Subsidiary Ledgers. 155

Review Financial Statements. 155

Accrue Tax Liabilities. 156

Close the Month. 156

Add Disclosures. 157

Issue Financial Statements. 157

Review Questions. 159

Chapter 17 - Financial Statement Disclosures. 160

Disclosure of Accounting Policies. 160

Basis of Accounting. 160

Nature of Operations. 161

Use of Estimates. 161

Basis of Combination. 161

Cash and Cash Equivalents. 161

Trade Accounts and Other Receivables. 162

Basis of Inventory Valuation. 162

Revenue Recognition. 162

Income Taxes. 162

Commitments. 162

Disclosure of Inventory. 163

Disclosure of Raised Dairy and Breeding Livestock. 163

Disclosure of Fixed Assets. 163

Disclosure of Deferred Income Taxes. 164

Balance Sheet 164

Income Statement 165

Disclosure of Short Term Notes Payable. 165

Disclosure of Long-Term Debt 166

Disclosure of Pension Plans. 166

Disclosure of Investments in Cooperatives. 166

Disclosure of Dealings with Cooperatives. 167

Review Questions. 168

Chapter 18 - Farm Financial Analysis. 169

Horizontal Analysis. 169

Financial Ratio Analysis. 170

Performance Ratios. 171

Net Profit Ratio. 171

Operating Income Ratio. 171

Quality of Earnings Ratio. 172

Breakeven Point 173

Efficiency Ratios. 174

Asset Turnover Ratio. 174

Working Capital Turnover 175

Liquidity Ratios. 175

Current Ratio. 175

Cash Ratio. 176

Debt to Equity Ratio. 177

Debt Service Coverage Ratio. 177

Capital Debt Repayment Capacity. 178

Return on Investment Ratios. 179

Return on Equity. 179

Return on Assets. 180

Net Farm Income. 182

EBITDA.. 182

Livestock Analysis Formulas. 183

Review Questions. 184

Answers to Chapter Questions. 185

Glossary. 204

Index. 211

 

Final Examination…………………………………………………………………………………………………215