Quiz 1 Flashcards
What is a part-time farmer?
A farmer that has other jobs on top of their farm.
What is a low-volume, high-value producer? Give an example.
A producer with less access to land or labour, and produces higher valued products.
Examples: Emus, bison, asparagus, pumpkins, organically grown produce, tofu soybeans, free-range poultry, seed crops.
What is a high-volume, low-margin producer? Give an example.
A producer that produces generic products, but expands production to increase income.
Examples: generic feed grains, oil seeds, fruits and vegetables, cotton, livestock products.
What is a specialty product and service producer? Give an example.
When someone specializes in a couple skills and becomes one of the best at preforming them.
Examples: Custom harvesting, custom cattle feeding, raising seed stock, raising replacement breeding stock, repairing equipment, hauling and applying manure, applying pesticides and fertilizers.
What is account payable?
An expense that has been incurred but not yet paid.
What is account receivable?
Income that has been earned but for which no cash payment has been received.
What is accrued expense?
An expense that has been incurred, sometimes accumulating over time, but has not been paid.
Example: interest on loans or property taxes
Which of the following might be inventory? Check all that apply.
A) Stored grain
B) Feeder pigs
C) Fertilizer
D) Diesel fuel
E) All of the Above
F) None of the above
E) All of the above
What is a prepaid expense?
A payment made for a product or service prior to the accounting period in which it will be used.
True or false, equity is when assets and liabilities are equal.
False
What is an expense?
A cost incurred in the production of revenue.
What is an asset?
Physical or financial property that has value and is owned by a business or individual.
Selling some of your feeder calves to your neighbor would be an example of what type of activity?
A) Financial
B) Investment
C) Production
C) Production
True of false, A balance sheet tells you how profitable a business is.
False
True or false, current assets are more valuable than noncurrent assets.
False
What is a liability?
A debt or other financial obligation that must be paid at some point in the future.
What is owner equity?
The difference between the total value of the assets of a business and the total value of its liabilities; also called net worth.
Assets - Liabilities = Owner Equity
Cost basis balance sheets are best
A) to show the present value of a business.
B) to secure a new loan.
C) to determine the best financial strategy.
D) to see how owner equity changes over time.
D) to see how owner equity changes over time.
What is revenue?
The value of products and services produced by a business during an accounting period.
True or false, market-basis and cost-basis balance sheets evaluate farm machinery differently.
True
What is inventory?
The physical quantity and financial value of products produced for sale that have not yet been sold (part of your assets and revenue if during the accounting period).
True or false, the biggest difference between cost-basis and market-basis balance sheets is in how they value crops still growing in the field.
False
What is net farm income?
The difference between gross revenue and total expenses, including gain or loss on the sale of all capital assets; also the return to owner equity, unpaid labor, and management.
What is profit?
Total revenue minus total expenses, including opportunity costs of labour and capital.
What is an accounting period?
A period of time used to summarize revenue and expenses and estimate profit; can be either a calendar year or a fiscal year.
What is cash accounting?
An accounting system that recognizes income when it is actually received and expenses when they are actually paid.
What is accrual accounting?
An accounting system that recognizes income when it is earned and expenses when they are incurred.
What is enterprise?
An individual crop or type of livestock, such as wheat, dairy, or lettuce. A farm’s production plan will often consist of several enterprises.
What is a whole-farm plan?
A summary of all the intended types and size of enterprises to be carried on by a farm business.
What is the difference between basic vs complete accounting?
Basic accounting is simple and uses cash accounting.
Complete accounting uses software with capabilities for both cash and accrual accounting. It can track a bunch of different things, such as inventory, loans, depreciation.
What is a balance sheet?
A snapshot of finances at a point in time. Listing what the assets are and what the liabilities are and the farms equity. It also provides measures of solvency and liquidity.
What is the Basic equation of accounting?
Equity = Assets - Liabilities
The basic equation of accounting shows how much an owner would get (equity) if they went bankrupt and the assets were sold to cover the debts.
What is a current asset?
Something that can be sold quickly without disrupting business, this includes cash, accounts receivable, and inventories of feed, grain, supplies, and feeder livestock. This is sold within the next year as part of normal business.
What is a noncurrent asset?
Something that cannot be sold quickly or easily and would disrupt business. This would include an asset that is being used in the production of goods or services such as machinery, breeding stock, fences, buildings, land and quota.
What are the four methods used for valuating assets?
Market value
Cost value
Farm production cost
Cost minus accumulated depreciation (book value)
What is market Value? Give examples.
A way that values assets at current market prices minus marketing fees. Works for items to be sold soon with current prices.
Examples: Grain, market livestock, and hay.
What is Cost value? Give examples.
A way that values purchased assets at their original cost. Works for recently purchased items.
Examples: Feed, fertilizers, and fuel.
What is farm production cost? Give examples.
The accumulated cost of producing an item.
Example: Crops in field.
What is cost minus accumulated depreciation (book value)? Give examples.
Used for assets that decline in value.
Examples: Machinery, buildings, purchased breeding livestock.
What is a cost basis balance sheet and what is an advantage?
This balance sheet shows the position of the business without considering any value gain on assets.
The advantage is that it reflects the original investment value on your business.
What is a market basis balance sheet and what is an advantage?
This balance sheet values all assets at market value so there are less estimated selling costs.
The advantage is that it shows a better picture of value of collateral to secure loans.
What is a current liability?
Financial debts that will become due and payable within one year from the date on the balance sheet. This would include payments for leased assets, property and income taxes, accounts payable.
What is a noncurrent liability?
Financial debts that will become due and payable more than one year from the date on the balance sheet.
What are the three major sections of a balance sheet and where is it located?
Assets -> Located on the left side.
Liabilities -> Located on the right side.
Equity -> Located on the bottom right side.
What can be the most difficult part in constructing a balance sheet?
Evaluating assets.
Which type of balance sheet, cost-basis or market-basis, is most likely to show a higher owner equity?
Market-basis.
