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| ACCOUNTS | The basic storage unit for accounting data used to accumulate amounts from similar transactions; constitutes the core data elements of the financial system. |
| ACCOUNTS PAYABLE | Claims against the farm or ranch business which have yet to be paid. |
| ACCOUNTS RECEIVABLE | Amounts owed to the farm or ranch business for products sold or services rendered. |
| ACCRUAL ACCOUNTING METHOD | Gross income and expenses are included in the accounting period in which earned or incurred, regardless of when payment is received. This method recognizes the importance of transactions, such as changes in inventory, changes in accrued interest, and changes in accounts payable and accounts receivable. |
| ACCRUED INTEREST | Interest owed but yet not paid. |
| ADJUSTED BASIS | The original cost of an asset plus the value of any improvement or alterations less the amount of depreciation, losses, or depletion. Adjusted basis is used to calculate depreciation and capital gains. Also called BOOK VALUE. |
| ADMINISTRATOR/ADMINISTRATRIX | A person legally vested with the right of administration of an estate. |
| ALLOCATIONS | The process of assigning costs of one segment of the organization to other responsibility centers in some systematic manner. Allocation criteria typically focus on the best objective and measurable way a particular segment provided support to other cost or profit centers of the organization. |
| AMORTIZATION | The repayment of a loan and the interest due with a series of equal payments over a specified period of time. |
| The repayment of a loan and the interest due with a series of equal payments over a specified period of time. | INTEREST RATE. |
| ANNUITY | The receipt of (or the making of) a series of uniform payments over a specified period of time. |
| APPRAISAL | An estimate of the fair market value of personal property or real estate by a certified appraiser. |
| ASSETS | Economic resources controlled by the farm or ranch business. |
| AVERAGE OUTPUT OR YIELD | Total units of output divided by the number of units of input. |
| BALANCE SHEET | NET WORTH STATEMENT. |
| BASIS- | ADJUSTED BASIS. |
| BASIS, MARKETING- | In futures contract trading, the difference between the local cash market price and the price of the near term (expiring) futures contract. |
| BEAR | A market participant who believes prices are too high and will decline. |
| BEAR MARKET- | A downward trend in market prices. |
| BENEFICIARY | BENEFIT/COST RATIO |
| BENEFIT/COST RATIO | An investment analysis ratio equal to the present value of all future benefits of an investment divided by the present value of all future costs. |
| BOOK VALUE | See ADJUSTED BASIS. |
| BREAK-EVEN | The output required for revenue to equal the total of fixed and variable costs. |
| BREEDING LIVESTOCK | Livestock held for reproduction. |
| BUDGET | A schedule of expected returns and costs. |
| BULL | A market participant who believes prices are too low and will advance. |
| BULL MARKET | An upward trend in market prices. |
| CALL OPTION | The right to buy an underlying futures contract or publicly traded stock at a specific price before a certain date. |
| CAPITAL | Non-human resources used in the production of goods and services. Examples are buildings, machinery, equipment, and cash. |
| CAPITAL BUDGETING | The process of estimating the profitability of an investment, or comparing the profitability of two or more alternative investments. Also called INVESTMENT ANALYSIS. |
| CAPITAL GAIN (LOSS) | The gain (loss) realized from the sale of a capital asset when the asset is sold for more (less) than its adjusted basis. |
| CAPITAL LEASE | A financial agreement to purchase an asset which in turn may have a value. |
| CAPITALIZATION | Process for placing a current value on an asset based on its expected future earning power and the expected interest rate. |
| CASH | Cash or access to accounts where cash may be withdrawn within one year. Cash is a capital resource. |
| CASH ACCOUNTING METHOD | All income and expenses, whether received in cash or property, are included in the accounting period they are received. |
| CASH FLOW STATEMENT | Shows cash received and spent during an accounting period, usually one year. When calculated over several periods, cash flow shows the use and requirements for cash over time. |
| CASH FLOW PROJECTION | The listing of all anticipated cash inflows for a period of time, usually one year, both farm and non-farm, and all projected cash outflows, including farm operating expenses and capital outlays, along with family living expenses and tax payments. |
| CASH VALUE OF LIFE INSURANCE | Cash available for borrowing or redemption but not the death benefit. |
| CHART OF ACCOUNTS | A list of account titles used to classify transactions in the general ledger; the consistent use of these accounts is essential for both internal usage and for the creation of industry-wide standard information. |
| COLLATERAL | Assets used to secure a loan. |
| COMMODITY- | Raw materials or semi-processed goods that can be bought and/or sold for further processing. |
| COMPARATIVE ANALYSIS- | The comparison of expected results from different action, approaches, or enterprises during the same time period. |
| COMPOUNDING- | Interest received from an investment is added to the principal and interest is paid again on the total sum. It can be used to determine the future value of the amount of money that you now have. The opposite procedure from DISCOUNTING |
| CONSTANT RATE OF SUBSTITUTION- | When one input, financial or physical, substitutes for another at the same rate for each additional unit of input. |
| CONTINGENT TAX- | Tax owed if all assets could be liquidated for exactly the amount shown on the balance sheet and all liabilities could be satisfied for the amount shown on the balance sheet. |
| CONTRACT- | An informal or formal written document or oral agreement that is a binding agreement between two or more people or businesses. |
| COOPERATIVE- | A corporation formed by a group of people—members—to provide specific products and/or services to themselves. |
| COOPERATIVE MARKETING- | A process whereby producers pool their resources for shipment to market in an effort to increase bargaining power. It may also be used for pooling for purchase of inputs. |
| CORPORATION- | A legal entity that can own property and conduct business. The entity is separate and distinct from its owners and managers. Shareholders own the corporation. Officers manage the corporation. |
| COST OF PRODUCTION- | Costs of the fixed and variable inputs needed to obtain output. |
| COST CENTER- | Support activities important to and used by profit centers (i.e., an equipment cost center supports the crop profit centers). (See PROFIT CENTER) |
| CREDIT- | An addition to revenue, net worth or any other account. |
| CURRENT ASSETS- | Cash, marketable securities, accounts and notes receivable, prepaid expenses, and inventories which are expected to be converted to cash within one year (or operating cycle if longer). |
| CURRENT LIABILITIES- | Debt payments that must be paid within one year (or operating cycle if longer). Includes interest accrued on loans at the time the net worth statement is prepared, principal payments, and other obligations. |
| CURRENT RATIO- | Current assets divided by current liabilities. |
| CUSTOM WORK- | Farm work performed for a charge involving the use of machinery and labor provided by someone other than the farm operator. |
| DEBIT- | An addition to an expense or asset account or a deduction from a revenue, net worth, or liability account. |
| DEBT- | A financial obligation to pay in the future. |
| DEBT/ASSET RATIO- | total farm liabilities divided by total farm assets multiplied by 100. |
| DEBT to EQUITY RATIO- | Total liabilities divided by total farm equity. |
| DEED- | A document that shows the exact size, location, ownership and method of ownership of real property. (See QUIT CLAIM DEED and WARRANTY DEED) |
| DELIVERY MONTH- | The calendar month during which a futures contract matures. |
| DELIVERY POINTS- | Those locations designated by commodity exchanges at which a commodity covered by a futures contract may be delivered in fulfillment of the contract. |
| DEMAND- | The quantity of the good which consumers are willing to purchase at alternative prices in a given period of time. As the price of a good increases, consumers will generally purchase less of the good, assuming everything else remains constant. |
| DEMAND SHIFTERS- | A change in the price of substitutes, income, and/or taste will cause the demand curve to shift left or right. Such a shift will result in a change in quantity purchased at a given price. |
| DEPLETION | Using up or consuming assets. Or the process of allocating the cost of natural resources to the periods in which the resources are used. |
| DEPRECIATION- | A method of prorating the cost of a capital asset over its useful life. A decrease in value of a capital asset that occurs regardless of repair and maintenance due to wear, tear, and/or obsolescence (see Farmer's Tax Guide for tax depreciation methods). |
| DIMINISHING MARGINAL RETURNS- | As the amount of one input is added in production, all other inputs remaining constant, the output will increase at an increasing rate, then increase at a decreasing rate, reaches a maximum, and then declines. |
| DISCOUNTING- | A calculation used to determine the current or present value of a cost or receipt expected in the future. Discounting adjusts for the time value of money. The opposite procedure from COMPOUNDING. |
| DIVERSIFICATION- | Engaging in several enterprises or activities to protect against the risk of failure or disasters or to fully use available resources. |
| DIVIDENDS- | A portion of a corporation’s profits divided among its shareholders according to the number of shares each shareholder owns. The board of directors makes dividend distribution decisions. |
| DOUBLE ENTRY- | An accounting system that keeps track of assets and liabilities simultaneously. Every credit is balanced by a debit entry. |
| ECONOMIES OF SCALE- | A situation where the ratios of inputs used in production remain the same as the output of the farm or ranch business is increased. |
| ECONOMIES OF SIZE- | A situation where the total cost per unit of output decreases as a result of increases in the size of the business. As farms and ranches become larger, the relative proportions of land, labor, and capital typically change. |
| EFFECTIVE DEMAND- | The desire and ability of the consumer to obtain a commodity. The amount of a commodity that a consumer is willing and able to buy. |
| EFFICIENCY- | A ratio of output to input. Economic efficiency refers to the ratio of output value to output cost. Production efficiency refers to the ratio of output quantity to input quantity. |
| ELASTICITY- | The percentage change in one variable in response to a percentage change in another variable. Price elasticity of demand refers to the percentage change in the quantity of a good that is purchased in response to a one percent change in price. Price elasticity of supply refers to the percentage change in the quantity of a good that is supplied in response to a one percent change in price. |
| ENTERPRISE- | A specific process or activity producing a single output. |
| ENTERPRISE BUDGET- | An enterprise budget shows the expected returns and costs associated with a specific production activity (e.g. soybeans) while a whole farm budget shows the expected returns and costs associated with all the enterprises in a business. |
| ENTITY- | Something that has a separate and distinct existence. For example, a corporation is an entity that is separate and distinct from its owners and shareholders. A corporation can continue to exist even if its owners and shareholders change. |
| EQUILIBRIUM PRICE- | The price at which the quantity supplied is equal to the quantity demanded for a particular commodity at a given time and place. Also called MARKET CLEARING PRICE. |
| EQUITY- | The financial measure of the value of a business or person. The value is derived by subtracting the amount of total liabilities from the value of all assets under the control of a business or individual. Calculated on a cost or market value basis. Also called NET WORTH OR OWNER EQUITY. |
| EQUITY/ASSET RATIO- | total farm equity divided by total farm assets multiplied by 100. |
| ESTATE- | The total value a person has in all property, real and personal. |
| ESTATE PLANNING- | The legal, economic and social act of determining the allocation of a person's property to appropriate heirs. It takes into account the laws of wills, taxes, insurance, property, and trusts and carries out a person's wishes for the disposition of property at death. |
| EXECUTOR/EXECUTRIX- | A person appointed in a will or by the court system to carry out requests and dispose of all property in accordance with the laws and desires of the deceased. |
| EXPENSE- | Any costs associated with producing a product. |
| FACTORS OF PRODUCTION- | Resources or inputs that are used in the production process. Also called INPUTS. |
| FAMILY LIVING WITHDRAWALS- | The total amount of money withdrawn from farm and non-farm revenues for personal consumption or use. |
| FARM FINANCIAL STANDARDS COUNCIL- | A committee devoted to improving and standardizing farm and ranch financial records |
| FIELD EFFICIENCY RATIO | The ratio of the actual performance of a farm machine to its ideal or theoretical capacity. |
| FIRM- | A business unit using resources to produce a products or service. |
| FIXED ASSETS- | See NON-CURRENT ASSETS. |
| FIXED COSTS- | The costs incurred by the firm that does not vary with the level of production. |
| FIXED INPUT (or RESOURCE)- | A factor of production whose quantity is given and does not vary with the level of production. |
| FIXED LIABILITIES- | See NON-CURRENT LIABILITIES. |
| FIXED RATIO- | Fixed costs divided by gross income. |
| FORWARD CONTRACT- | A written agreement that specifies that a certain commodity will be delivered at a particular location at a future time for an exact price. |
| FREE MARKET- | A market where there is an interaction of supply and demand, without interference of government controls, tariffs, monopolies, or other artificial barriers to the supply and demand of a commodity. |
| FUTURES CONTRACT- | An agreement to buy and receive or to sell and deliver a specific commodity at a future date and place. The contract written by a commodity exchange includes the specific characteristics of the delivery. |
| FUTURE VALUE- | The value at some time in the future of an asset or liability after it has been compounded with interest for a specified period of time. |
| GENERAL LEDGER- | The collection of all accounts maintained by an organization from which summary information is obtained to generate financial statements and other management reports and performance measures. |
| GOAL- | the end toward which effort is directed. More general or “big picture” statements associated with a business’ mission. |
| GOODS- | tangible items that are produced by a business or firm from combining inputs. Tangible means physical outputs that can be touched. See SERVICES. Using the term PRODUCTS refers to both goods and services. |
| GROSS RATIO- | Total expenses (fixed and operating) divided by gross income. |
| GROSS RETURNS OR GROSS RECEIPTS- | Gross income before expenses are deducted. |
| GROWING CROPS- | Crops yet to be harvested when they are inventoried. |
| HEDGING- | The selling of a commodity futures contract to protect a producer from price fluctuations in the marketplace at the time the product is sold. Hedging insures against substantial loss but also prevents windfall gains. Hedging can also be used in the purchase of inputs. |
| HORIZONTAL INTEGRATION- | Combining two or more firms at the same stage of production or marketing. See STAGES OF PRODUCTION. |
