Explain briefly the following terms in farm management: (a) farm valuation. (b) cash analysis account; (c) profit and loss account; (d) balance sheet.

Answer Details

Terms in farm management

(a) Farm valuation

Farm valuation is the process of estimating in money terms the total worth (value) of all the assets on a farm, such as land, buildings, machinery, livestock, crops and stored produce, at a particular point in time. It is used to determine the capital of the business and to prepare the balance sheet.

(b) Cash analysis account

A cash analysis account is a farm record that shows all the cash receipts (income) and cash payments (expenses) of the farm business, arranged and analysed under different headings or items over a period. It helps the farmer to see the sources of income and how money was spent.

(c) Profit and loss account

A profit and loss account is a financial statement that summarises the total income (revenue) and total expenses of the farm business over a period (usually one year), so as to show whether the farm made a profit or a loss. A profit is made when income exceeds expenses; a loss occurs when expenses exceed income.

(d) Balance sheet

A balance sheet is a statement that shows the financial position of the farm business at a particular date by listing its assets (what it owns) on one side and its liabilities (what it owes) and capital/net worth on the other. The two sides must balance, since assets equal liabilities plus the owner's capital.