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1. Current Assets

   Valuation and Control Chapter 7
2. Current Assets Asset valuation The FFSC borrowed concepts from GAAP, but the FFSC recommendations are not equivalent to GAAP
3. Current Assets Asset valuation Historical cost Cost to purchase Cost of production (cost accounting) Other (gifts and inherited property) Current market value
4. Current Assets Asset valuation For grains, oilseeds, and livestock near market weight, market values are easy to obtain
5. Current Assets Asset valuation Lenders prefer market values because they can determine market value based owner equity
6. Current Assets Asset valuation Fluctuations in the market values of current assets cause fluctuations in net income and market value based owner equity
7. Current Assets Asset valuation The FFSC balance sheet and schedules allow for simultaneous recording of cost basis values and market values of assets
8. Cash and Equivalents Cash and equivalents: currency, coins, checks received but not yet deposited, checking accounts, petty cash, savings accounts, money market accounts, and short-term, highly liquid investments with a maturity of three months or less at the time of purchase such as U.S. treasury bills and commercial paper (Accounting Coach)
9. Cash and Equivalents Cash balance Farm record should be reconciled with each bank statement Some software, such as Quicken and QuickBooks, will reconcile accounts
10. Cash and Equivalents Cash balance Differences between bank statements and farm records are due to: Deposits in transit Outstanding checks Bank charges Bank credits Errors
11. Accounts Receivable Accounts receivable A current asset resulting from selling goods or services on credit (on account) (Accounting Coach) Within a double-entry system, revenue is recorded with accounts receivable
12. Accounts Receivable Accounts receivable Deliver and sell soybeans for $72,600 accounts receivable $72,600 sales:crops:soybeans $72,600
13. Inventory Inventories are business assets Failure to keep accurate inventory records can lead to loss of profits and assets! This statement becomes more relevant as firms become larger.
14. Inventory Uses of inventory records Balance sheet preparation Compute accrual net income Validate insurance claims Alternative types of firms Retail Manufacturing/Farming
15. Inventory Official categories of inventory (mfrs/farms) Materials Work in process Finished goods
16. Inventory Materials & supplies Used up and later replaced Generally applies to crop inputs Replenished before being used up Livestock feeding Dairy production
17. Inventory Methods Perpetual Inventory subsidiary ledger is updated after each transaction Inventory quantities are updated continuously. Periodic Purchases account is updated continuously Inventory account is updated on a periodic basis, at the end of each accounting period http://accountinginfo.com/study/inventory/inventory-110.htm
18. Inventory Control & valuation Perpetual LIFO Perpetual FIFO Periodic Count, measure, or weigh Determine value/cost per unit
19. Inventory FFSC recommendations Inventories of harvested crops and raised livestock held for sale: valuation should be at market value less the cost of disposal
20. Inventory FFSC recommendations Inventories of raised/harvested item to be used in the production process: market valuation is acceptable but not preferred to the lower of cost or market
21. Inventory FFSC recommendations Inventories (such as feeder livestock, crops, etc.) that are purchased with the intention of being resold in the same general form: market valuation is acceptable but not preferred to valuation using the lower of cost or market
22. Inventory FFSC recommendations Inventories purchased for use in the production process: valued at cost
23. Inventory FFSC recommendations Producers should disclose the inventory valuation practices and follow those valuation practices consistently from one year to the next A conservative valuation method should be used for valuing any inventory items that will be consumed in the next business cycle.
24. Inventory Complete inventory valuation problems on pp. 30-31 in packet
25. Prepaid Expenses Prepaid expenses Current asset representing amounts paid in advance for future expenses. As the expenses are used or expire, expense is increased and prepaid expense is decreased. (Accounting Coach) Insurance premium paid or prepaid rent
26. Supplies Supplies Within some accounting systems, supplies are separated into supplies inventories (overhead) and prepaid expenses When used, the prepaid expense item becomes part of work in process
27. Cash Investment in Crops Cash investment in growing crops Cash paid for inputs that have been applied to a crop that will be harvested in the next accounting year, e.g. fall application of fertilizer
28. Current Assets Complete current assets section of balance sheet on p. 43 in packet