Understanding Net Worth, Cash Flow, Income Statements and Computerized Record Keeping

Transcription

1 Lesson D3 2 Understanding Net Worth, Cash Flow, Income Statements and Computerized Record Keeping Unit D. Basic Agribusiness Principles and Skills Problem Area 3. Keeping and Using Records in Agricultural Occupations Lesson 2. Understanding Net Worth, Cash Flow, Income Statements and Computerized Record Keeping New Mexico Content Standard: Pathway Strand: Agribusiness Systems Standard: III: Apply generally accepted accounting principles and skills to manage budget, credit, and optimal application of AFNR business assets. Benchmark: III-A: Use key accounting fundamentals to accomplish dependable bookkeeping and associated files. Performance Standard: 5. Prepare and interpret financial statements (e.g., balance sheet, profit/loss statement, cash flow statement). Student Learning Objectives. Instruction in this lesson should result in students achieving the following objectives: 1. Develop a net worth statement for an agricultural business. 2. Develop an income statement for an agricultural business. 3. Develop a cash flow statement for an agricultural business. 4. Understand computerized record keeping. Unit D. Problem Area 3. Lesson 2. Page 1.

2 List of Resources. The following resources may be useful in teaching this lesson: Recommended Resources. One of the following resources should be selected to accompany the lesson: Steward, Jim, Raleigh Jobes, James Casey, and Wayne Purcell. Farm and Ranch Business Management. Moline, Illinois: Deere & Company, (Text and Student Manual, Chapter 2). Decisions & Dollars. Alexandria, Virginia: The Council for Agriculture Education, (Curriculum Binder, Unit II.B) Other Resources. The following resources will be useful to students and teachers: Barry, Peter, et. al. Financial Management in Agriculture, Sixth Edition. Danville, Illinois: Interstate Publishers, Inc., (Textbook, Chapter 3) List of Equipment, Tools, Supplies, and Facilities Writing surface Overhead projector Transparencies from attached masters Copies of student lab sheets Terms. The following terms are presented in this lesson (shown in bold italics): Accrual accounting Assets Cash accounting Cash flow statement Current assets Current liabilities Expenditures Income statement Liabilities Net income Net worth statement Non-current assets Non-current liabilities Revenue Unit D. Problem Area 3. Lesson 2. Page 2.

3 Interest Approach. Use an interest approach that will prepare the students for the lesson. Teachers often develop approaches for their unique class and student situations. A possible approach is included here. Have students total the value of items currently in their possession. Ask them what happens to their financial position if you owe them $20. Are they now worth more or less? Net worth looks at situations like this. Review the objectives of this lesson with the students. Summary of Content and Teaching Strategies Objective 1: Develop a net worth statement for an agricultural business. Anticipated Problem: What is a net worth statement? I. A net worth statement shows the financial health of a business at a given point in time. A. A net worth statement determines the ability for a business to pay all debts by selling all assets. B. Assets are items owned by the business and have value. C. Liabilities are debt obligations. D. Assets and liabilities are considered current or non-current. 1. Current assets are those items owned that will be used up or turned to cash within one year. 2. Non-current assets are those items with useful lives of greater than one year. 3. Current liabilities are those debts due within one year. 4. Non-current liabilities are those debts due after one year. E. Total assets are current assets + non-current assets. F. Total liabilities are current liabilities + non-current liabilities. G. Net worth or equity is calculated by subtracting total liabilities from total assets. Assign Farm and Ranch Business Management Chapter 2. Use TM: D3 2A and TM: D3 2B to discuss the components of a net worth statement. Have students complete LS:D3 2A Determining Net Worth. Objective 2: Develop an income statement for an agricultural business. Anticipated Problem: What is an income statement? II. An income statement is a financial instrument that shows the profits or losses of a business over a period of time. A. A basic understanding of two accounting principles is needed. Unit D. Problem Area 3. Lesson 2. Page 3.

4 1. Cash accounting method means that income and expenditures are recorded when they are received or paid. 2. Accrual accounting method means that income and expenditures are recorded when the service or product is delivered or received. Accrual accounting also shows changes in assets and liabilities. B. Income statements list all business revenue and expenditures. C. Revenue is cash receipts from services performed, products sold, etc. D. Expenditures are cash paid for services, inputs purchased, etc. E. Net income is revenue minus expenditures. Use Farm and Ranch Business Management Chapter 2 as a reference for this objective. Use TM: D3 2C to discuss cash and accrual accounting. Use TM: D3 2D to discuss the components of an income statement. Have students complete LS:D3 2B Completing an Income Statement. Objective 3: Develop a cash flow statement for an agricultural business. Anticipated Problem: What is a cash flow statement? III. What is a cash flow statement? A. A cash flow statement is a financial report that records the cash receipts and cash expenditures of the business over a period of time, usually for an entire year. B. Cash flow shows the business s ability to meet financial obligations. Use Farm and Ranch Business Management Chapter 2 as a reference for this objective. Objective 4: Understand computerized record keeping. Anticipated Problem: How can a business owner use computerized record keeping? IV. Computerized record keeping can be helpful to agribusiness managers in the following ways: A. Monitor feed rations. B. Plan changes in enterprises and whole business. C. Record tax and accounting information. D. Help in marketing of products through price analysis and market trends. E. Schedule workloads for employees. F. Provide financial statements. G. Track inventories. Use Farm and Ranch Business Management Chapter 2 as a reference for this objective. Use TM: D3 2E to discuss the advantages of computerized records. Invite a accountant or other expert to discuss the types of computerized records being used in agribusiness. Unit D. Problem Area 3. Lesson 2. Page 4.

5 Review/Summary. Focus the review and summary of the lesson around the student learning objectives. Call on students to explain the content associated with each objective. Application. Application can involve one or more of the following student activities using attached lab sheets: LS: D3 2A Determining Net Worth LS: D3 2B Completing an Income Statement Evaluation. Evaluation should focus on student achievement of the objectives for the lesson. Various techniques can be used, such as student performance on the application activities. A sample written test is attached. Answers to Sample Test: Part One: Matching 1=c, 2=k, 3=g, 4=a, 5=e, 6=j, 7=h, 8=i, 9=b, 10=d, 11=f Part Two: Completion 1=cash accounting 2=net income 3=revenue, expenditures 4=accrual accounting 5=liabilities, assets Part Three: Short Answer Cash flow statements can be used to show ability to cover financial obligations, provide credit information, and show needs for loans. Unit D. Problem Area 3. Lesson 2. Page 5.

6 Sample Test Name Test Lesson D3 2: Understanding Net Worth, Cash Flow, Income Statements and Computerized Record Keeping Part One: Matching Instructions. Match the term with the correct response. Write the letter of the term by the definition. a. Assets g. Net income b. Cash flow statement h. Net worth statement c. Current assets i. Non-current asset d. Current liability j. Non-current liability e. Expenditure k. Revenue f. Income statement 1. Items to be used or turned into money within one year. 2. Money that was received. 3. Cash revenue minus cash expenditures. 4. Item owned with market value. 5. Cash outlay. 6. Debt due after one year. 7. Financial document used to determine owner equity. 8. Item owned with market value that will be used for more than one year. 9. Financial document used to show ability to cover financial obligations over a period of time Debt due within one year. Financial document used to determine profit. Part Two: Completion Instructions. Provide the word or words to complete the following statements. 1. is used to record expenses and reciepts when they are paid or received. Unit D. Problem Area 3. Lesson 2. Page 6.

7 2. is another name for profit. 3. An income statement lists both and. 4. records expenses and revenue when they are incurred. 5. Net worth is determined by subtracting from. Part Three: Short Answer Instructions. Provide information to answer the following questions. 1. How can an agribusiness owner utilize a cash flow statement for his or her operation? Unit D. Problem Area 3. Lesson 2. Page 7.

8 TM: D3 2A Components of a Net Worth Statement Net worth statement shows the financial health of a business at a given point in time. Assets items owned by the business and have value. Current assets items owned that will be used or turned to cash within one year. Non-current assets items whose useful life is greater than one year. Liabilities debt obligations. Current liabilities debts due within one year. Non-current liabilities debts due after one year. Unit D. Problem Area 3. Lesson 2. Page 8.

9 TM: D3 2B Components of a Net Worth Statement Total assets = current assets + non-current assets. Total liabilities = current liabilities + non- current liablities. Net worth or equity = total assets total liabilities Unit D. Problem Area 3. Lesson 2. Page 9.

10 TM: D3 2C Cash vs. Accrual Accounting Cash accounting income and expenditures are recorded when they are received or paid. Accrual accounting income and expenditures are recorded when the service or product is delivered or received. Accrual accounting also shows changes in assets and liabilities. Unit D. Problem Area 3. Lesson 2. Page 10.

11 TM: D3 2D Income Statement Components Income statement a financial instrument that shows the profits or losses of a business over a period of time. Revenue cash receipts from services performed, products sold, etc. Expenditures cash paid for services, inputs purchased, etc. Net income = revenue expenditures. Unit D. Problem Area 3. Lesson 2. Page 11.

12 TM: D3 2E Uses of Computerized Records Monitor feed rations. Plan changes in enterprises and whole business. Record tax and accounting information. Help in marketing of products through price analysis and market trends. Schedule workloads for employees. Provide financial statements. Track inventories. Unit D. Problem Area 3. Lesson 2. Page 12.

13 LS: D3 2A Name Lab Sheet Determining Net Worth Purpose: 1. To determine net worth given financial information. Procedure: 1. Using the following information, answer the questions that follow. Sows & boars...$16,250 Real estate mortgage balance after this year...85,000 Non-breeding swine...37,085 Machinery... 51,000 Real estate payment due this year...13,600 Stored crops... 12,495 Checking account...1,250 Machinery loan balance after this year...45,695 Machinery payment due this year...12,000 Land ,035 Misc. supplies... 42,645 Operating loan balance...22,500 Neighbor owes for custom harvesting...1,000 a. What is the value of current assets? b. What is the value of non-current assets? c. What is the value of total assets? d. What is the value of current liabilities? e. What is the value of non-current liabilities? f. What is the value of total liabilities? g. What is the net worth for this farmer? Unit D. Problem Area 3. Lesson 2. Page 13.

14 LS: D3 2B Name Lab Sheet Completing an Income Statement Purpose: 1. To utilize financial information to determine net income. Procedure: 1. Determine the net income for the following situation, using the cash accounting basis. Begin by identifying each item listed below as revenue or an expenditure. Purchased 45 feeder pigs...$1,350 Purchased feed... 1,000 Veterinary bills Sale of fat hogs... 2,700 Seed cost... 2,200 Fertilizer & chemical cost...4,500 Machinery & equipment costs...5,700 Sale of grain ,430 Government payments...10,425 Depreciation a. What is the total revenue? b. What is the total expense? c. Cash accounting: Net income = Unit D. Problem Area 3. Lesson 2. Page 14.

15 LS KEY: D3 2A Lab Sheet Key Determining Net Worth Sows & boars...$16,250 Real estate mortgage balance after this year...85,000 Non-breeding swine...37,085 Machinery... 51,000 Real estate payment due this year...13,600 Stored crops... 12,495 Checking account...1,250 Machinery loan balance after this year...45,695 Machinery payment due this year...12,000 Land ,035 Misc. supplies... 42,645 Operating loan balance...22,500 Neighbor owes for custom harvesting...1,000 NCA NCL CA NCA CL CA CA NCL CL NCA CA CL CA h. What is the value of current assets? $ 94,475 i. What is the value of non-current assets? $329,285 j. What is the value of total assets? $423,760 k. What is the value of current liabilities? $ 48,100 l. What is the value of non-current liabilities? $130,695 m. What is the value of total liabilities? $178,795 n. What is the net worth for this farmer? $244,965 Unit D. Problem Area 3. Lesson 2. Page 15.

16 LS KEY: D3 2B Lab Sheet Key Completing an Income Statement Purchased 45 feeder pigs...$1,350 Purchased feed... 1,000 Veterinary bills Sale of fat hogs... 2,700 Seed cost... 2,200 Fertilizer & chemical cost...4,500 Machinery & equipment costs...5,700 Sale of grain... 51,430 Government payments....10,425 Depreciation E E E R E E E R R E c. What is the total revenue? $64,555 d. What is the total expense? $22,100 c. Cash accounting: Net income = $42,455 Unit D. Problem Area 3. Lesson 2. Page 16.