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This is Farm Management, Chapter 3, Acquiring and
Organizing Management Resources.
There are three farm business activities to be included in
an accounting system.
We have production activities, investment activities, and
financing activities.
Production activities, these accounting transactions
involve activities related to the production
of crops and livestock.
Revenue from product sales or other farm revenue is included
here, as are production expenses.
Investment activities, these activities relate to the
purchase, depreciation, and sale of long-lived assets such
as land, equipment, or breeding livestock.
Records should include purchase's date and price,
annual depreciation, book value, current market value,
sale , date, and price, and gain or loss when sold.
The third activity is financing.
These transactions relate to borrowing money and paying
interest and principal on loans.
Financing activities include money borrowed to finance new
investments and money borrowed to finance production
activities.
Here's a simple exercise from the textbook.
In this exercise you're required to place an x under
the columns to indicate whether each business event is
a production, investment, or finance activity.
OK, so if we look at exercise one, the first event says pay
cash for tractor repairs.
This would be an example of a production activity, as it is
considered a production expense.
So you place an x there.
The second event is to borrow $10,000.
Borrowing money is an example of a financing activity.
So we place an x under financing.
When you pay interest on the loan, interest on the loan is
part of the financing activity, but it is also part
of the production expense.
So we place an x under production expense.
When you charge $1,000 of feed, feed is also a
production expense.
So we place an x there.
Equipment depreciation would also be considered a
production expense.
When you sell $12,000 of corn is also considered a
production expense.
The purchase of a pickup is considered an investment
activity as it is a long-lived asset.
And when you pay principal on the loan, the principal on the
loan would be considered a financing activity.