Accounting 1
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Transcript of Accounting 1
Management is…
• Planning, organizing, directing, and controlling a business. The most important and challenging is control… the process of analyzing, evaluating and interpreting the production and financial performance of a business.
Information…
• Can and does come from many sources. Some of the best and most needed information can come from each business’ own financial and production records.
Systems…
• Need to be implemented that allow for only necessary record keeping and effective use of records. Summary information from these records should be invaluable in day to day business decisions.
Uses and Purposes of Financial Records
ManagementDecisionMaking
Credit Acquisition
Income TaxReporting
Keys to Successful Record Keeping
• Excessive detail often ends in Confusion, Frustration, and Failure
Keys to Successful Record Keeping
• Know your Purpose for Keeping Records
IncomeTaxes
Management
Banking
Accrual Based RecordsTransactions are recorded when they take place
Regardless of whether cash is involved
Accrual Adjusted Statements
Cash based records are kept throughout the year
Non-Cash adjustments are made to the cash based income statement at the end of the year
Accrual Adjusted Income Statement
Cash incomes and expenses must be adjusted by:• Changes in non-cash assets
• Inventories• Pre paid expenses• Receivables
• Changes in non-cash liabilities• Payables• Accrued interest
Basic Financial Statements
• Balance Sheet• Income Statement• Statement of Owner Equity• Statement of Cash Flows
Assets Liabilities
Equity
Assets Liabilities
Equity
+/- Net Income+/- Valuation Changes- Capital withdrawals
+ Capital contributions
Beginning Balance Sheet Ending Balance Sheet
Financial Analysis
• Basic Set of Financial Statements
• Understanding of how to Analyze and Interpret the Financial Statements
Requires
Financial AnalysisAll business owners should have a basic set of financial statements at their disposal and they should know how to analyze and interpret them.
Profitable Management of the “Extensive” Enterprise
• Forage-based cow/calf production has long represented a management paradox. Very high investment requirements per dollar of output provides a strong incentive to increase output per head (thereby reducing investment per dollar of output). Unfortunately, this ever-so-tempting objective has been regularly frustrated by the low economic responsiveness to performance enhancing technology. In short, it simple has not paid to manage beef cows or perennial grass with the same “intensity” as we do with more intensive enterprises like dairy cows, hogs, and row crops.
Profitable Management of the “Extensive” Enterprise
• In extensive enterprises (such as the commercial cow/calf business), we seldom find it profitable to maximize yield per acre or performance per animal. Rather than “pouring on the technology”, we must recognize the nature of the brute, live harmoniously with nature, and make a very discriminating use of yield or performance-enhancing technology. In brief---we generally have to finesse a profit.
Profitable Management of the “Extensive” Enterprise
• Output maximization may approximate optimal management for intensive enterprises. However, optimal management of the extensive enterprise comes closer to input minimization.
V.E. Jacobs, 1984
A Paradox• Farmers believe they benefit from
agricultural technology…but they don’t• Consumers don’t believe they benefit…but
they do
Technology is….
• Productivity enhancing• Management intensive• Capital intensive• Not scale neutral