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classifying, and summarizing business transactions The balance sheet and the profit-and-loss statement are the starting points of most financial analysis Agribusiness managers must understand these documents in order to evaluate the financial performance of their business
financial performance
owns or uses
Current assets: current cash holdings or something that will turn into cash within the current accounting period Fixed assets: something the firm owns or uses that will not turn into cash within the accounting period
Balance Sheet AgBiz Corporation December 31, 20__ Assets Current Assets - Cash - Accounts Receivable - Inventories Fixed Assets - Land - Buildings and Equipment Investments Total Assets Liabilities Current Liabilities - Notes Payable - Accounts Payable - $ Due this YR on LT Debt Long-Term Liabilities Owners Equity
money the firm earned from the sale of its goods and service this period
Cost of goods sold: represents the
direct costs to the business of just the goods that are sold this period
and administering the business, outside of the direct cost of goods sold Overhead
Profit: equal to gross margin minus operating
expenses
Net profit: profit after income taxes have been
AgBiz Corporation
For the Year Ending December 31, 20__
Gross Margin Less: Operating Expenses Income Before Taxes Less: Allowance for Income Taxes Net Income (to Retained Earnings)
Discussion Questions
1.
Explain why it is important for managers to understand financial management in order to be effective. Why does this process start with the balance sheet and the profit-and-loss statement? In your own words, describe the balance sheet and what it tells managers. What does it not tell managers about their business? In your own words, describe the profit-and-loss statement and what it tells managers about their business.
2.
3.
4.
Explain why the accounting period and the fiscal year may not coincide with the calendar year.
5. 6. 7.
Explain the difference between current and fixed assets on the balance sheet. Why are they arranged this way? In your own words describe the depreciation process used by accountants and why accountants use it. Explain when a business is solvent and insolvent. Develop an example for an agribusiness when it might be solvent in one part of year and insolvent in another. Explain why an insolvent business may not need to file for bankruptcy. In your words, explain how to calculate the value for cost of goods sold on a profit-and-loss statement. Explain why this works. What would be an alternative way to calculate cost of goods sold?
8.
9.
Explain how you would decide if a cost should be allocated to cost of goods sold or operating expenses. Give an example of each. retained earnings. Why are retained earning transferred to owners equity on the balance sheet after they are calculated?
10. Define and explain the difference profits, net profits, and