Notes Taking Key
Topic #4051
Methods of Accounting
Kendra Butters
A. Components of a successful business
a. Facilities
b. Mission Statement and Goals
c. Employees
d. Management Decisions
e. Record Keeping/Accounting
B. Record Keeping
a. Accounts payable – unpaid bills or debts
b. Accrual accounting – income is reported in the year earned and expenses are
deducted or capitalized in year incurred
c. Balance sheet – financial statement of equity for an individual/business for a
specific point in time; list of assets and liabilities
d. Cash accounting – method of accounting where income is credited to the year it
was received and expenses are deducted in the year they were paid
e. Expense – cost of goods or services involved with producing a product or service
f. Income – payment received from goods or services, can be cash or noncash
g. Income statements – summary of revenues and expenses over a given period of
time
h. Net income – revenue minus expenses
i. Profit – difference between income and expenditures
j. Revenue – income to the business from the sale of goods or services or changes in
inventory
C. Careers in Agribusiness
a. Business Owner
b. Employee
c. Accountant
- keeps, audits and inspects the financial records of individuals or
business
- prepares financial and tax reports.
D. Accrual and Cash Accounting
a. Difference – time in which each type identifies income and expenses
b. Accrual – recognizes income and expenses when they are incurred rather than
paid
Example: pick up couple bags of grain from the feed mill and it goes on your
account; it is recorded on the accounting statement
Importance: income tax purposes
Advantages: Better measure of income
Disadvantages: Increased record requirements
c. Cash – recognizes income and expenses when the income is actually received and
when the expenses are actually paid (when the payment changes hands)
Example: pick up couple bags of grain from feed mill and it goes on your
account; recorded on the accounting statement when you pay off the bill
Importance: analyzing the financial performance of the business
Advantages: Simplicity
Flexibility
Disadvantages – Poor measure of income
Potential for income variation