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| INCOME | The amount of money received from selling a product or providing a service. Broadly refers to the difference between revenue and expenses. |
| INCOME AVERAGING | An income tax reporting strategy in which part of an unusually large amount of taxable income in one accounting period is combined with a lower amount in another accounting period whereby the average amount of tax is reduced. |
| INCOME STATEMENT | A financial statement that lists the cash and non-cash receipts and expenses of a firm or individual during a specified period of time, usually a year. Also called PROFIT-AND-LOSS STATEMENT or OPERATING STATEMENT. |
| INFLOWS | Money received by a business or person regardless of how it was generated. |
| INPUT | A factor of production that is added such as land, labor, capital, or raw materials. |
| INSURANCE | Economic device whereby an individual or firm substitutes a certain cost (premiums) for an uncertain financial loss (risk insured against). |
| INSURANCE PREMIUM | The payment to an insurance company by a policyholder to purchase and maintain an insurance policy. |
| INTEREST | The rental charge for the use of principal. The expense incurred for borrowing money or the revenue generated from lending money. |
| INTEREST RATE | Percent charged on principal for the use of money. Always expressed as an annual rate. Also called ANNUAL PERCENTAGE RATE (APR). |
| INTERNAL RATE OF RETURN | The discount rate that makes the present value of a flow of revenues and costs equal to zero. An investment 'break-even' analysis. A present worth technique that compares the present value of expected receipts to the present value of expected costs. This allows the investor to compare investments and determine if an investment is potentially profitable |
| INVENTORY | - A physical count of all assets in a business. Usually done once every year for investment analysis or income tax purposes. An inventory may be done continuously to monitor available assets. |
| INVESTMENT | The act of putting money into business, real estate, stocks, bonds, etc. for the purpose of obtaining income or profit. |
| INVESTMENT ANALYSIS | CAPITAL BUDGETING |
| LAW OF DIMINISHING RETURNS | When successive units of a variable input are added to the production process (all other inputs remaining fixed) the resulting output increases at an increasing rate, then increases at a decreasing rate, reaches a maximum, and finally decreases. |
| LEASE | A formal agreement by which a person (the lessor) grants the right to use an asset to another person (the lessee) for a specific time and use in exchange for cash or value. |
| LEVERAGE | Using borrowed capital to increase the return on equity capital. It can also increase losses in the event of decreasing price. |
| LEVERAGING | A strategy of acquiring assets with a large proportion of borrowed funds |
| LIABILITIES | Claims against a business. The amount of money owed on a net worth statement. Also referred to as DEBTS. Liabilities are classified as current and non-current. |
| LIABILITY | A claim against an individual/entity to compensate a second person for a physical injury or an economic loss caused by the negligence of the first individual/entity. |
| LIEN | Right of creditor to have a debt satisfied from real or personal property belonging to the debtor if the debtor defaults on regular payment of the debt. |
| LIQUIDITY | Refers to the ease with which assets may be converted to cash. Used to measure a firm's capacity to generate sufficient cash to meet its financial obligations. |
| LIMITED LIABILITY | In the corporate form of business ownership, the shareholders are not personally responsible for business debts. Their liability is limited. |
| LIMITED LIABILITY CORPORATION (LLC | A type of business organization that achieves the favorable tax attributes of a partnership, the limited liability of a corporation, and a high degree of flexibility to fit business needs. |
| LONG | The action of taking a position in which one has bought futures contracts (or the cash commodity) without taking the offsetting action. Also called going long. |
| MANAGERIAL ACCOUNTING | System organized to allow the owner/manager to magnify specific segments and/or activities of the business. Managerial accounting is especially useful to those operations that have employees managing certain activities or segments of the business; want to enhance profitability; and want to more effectively manage segment assets and control costs |
| MARGIN | In futures contract trading, the amount of money deposited by buyers and sellers of futures contracts to ensure performance. This serves as a performance bond rather than a "down payment." If a futures contract moves against an investor, the broker may require additional margin payments. |
| MARGINAL COST | The change in total costs, or total variable costs, due to the production of one more unit of output. |
| MARGINAL FACTOR COST | The change in total factor costs due to the use of one more unit of a variable input |
| MARGINAL PHYSICAL PRODUCT | The change in total output or product due to the use of one more unit of a variable input |
| MARGINAL VALUE PRODUCT | The change in total value product due to the use of one more unit of a variable input. |
| MARKET | A place where the exchange of commodities between a buyer and a seller occurs. |
| MARKETING | All of the processes and services involved in moving a commodity from the producer to the ultimate consumer. The activity involved in buying and selling a product. See STAGES OF PRODUCTION. |
| MARKETING MARGIN | The difference between the amount consumers pay for the final product and the amount producers receive. |
| MARKET VALUE | Fair market value of an asset minus the selling cost. The estimated amount of cash you would receive for selling an asset today, after deducting all expenses of the sale. |
| MARK-UP | An increase in selling price over purchase price. Generally expressed as a percentage of the purchase price or the selling price. |
| MAXIMIZE RETURNS | Realizing the greatest amount of return on an investment. Occurs where MARGINAL COSTS equals MARGINAL REVENUE. |
| MONOPOLY | The marketplace has only one firm that is selling products or services. |
| MORTGAGE | The use of property, usually real estate, as collateral for a loan. Frequently used to refer to the loan itself. |
| NET CAPITAL RATIO | A financial measure of solvency where the total assets are divided by the total liabilities. The quotient must be above 1 for the business to be solvent. |
| NET FARM INCOME | The returns to unpaid family and operator labor, management and equity capital. May be calculated as total operating receipts minus total operating expenses equals net cash income minus non-cash adjustments (inventory, receivables, payables). |
| NET INCOME | The difference between revenue and expenses. |
| NET POSITIONS | In futures contract trading, the difference between the open contracts long and the open contracts short held in any one commodity. By definition always zero for the whole market. |
| NET PRESENT VALUE | The projected net cash flows from an investment are discounted by a specified rate and compared to the cost of the original investment. The investment is considered acceptable if the present value of the discounted projected cash flow is greater than the original investment. |
| NET RETURNS | The financial returns after all costs have been paid. Net returns are usually a residual as net cash income or net farm income. |
| NET WORTH | Total assets minus total liabilities. Also called OWNER EQUITY or EQUITY. |
| NET WORTH STATEMENT | A financial statement with a list of assets, liabilities, owner equity and their relationship to each other at a particular time, usually at the end of the accounting period. It is the picture of the business on a particular date. Also called BALANCE SHEET, FINANCIAL STATEMENT, or STATEMENT OF FINANCIAL CONDITION |
| NON-BREEDING LIVESTOCK | Livestock whose ultimate purpose will be slaughter or resale, but not reproduction. |
| NON-CURRENT ASSETS | - All assets controlled by the farm or ranch business having a life greater than one year. |
| NON-CURRENT LIABILITIES | Liabilities due past (or after) one year. |
| OBJECTIVE | some thing toward which effort is directed. More specific that goals. Usually expressed in terms of a quantifiable activity to be completed in a state period of time. |
| OFFSET | In futures contract trading, the liquidation of a purchase of futures through the sale of an equal number of contracts for the same delivery month, or the covering of a short sale of futures contracts through the purchase of an equal number of contracts of the same delivery month. Either action transfers the obligation to make or take delivery of the actual commodity to another trader. |
| OLIGOPOLY | The marketplace has a small number of firms that are selling products or services. |
| OPEN CONTRACTS | Open futures contracts that have been bought or sold without the transaction having been completed by subsequent sale or repurchase, or actual delivery or receipt of commodity. |
| OPERATING EXPENSES | Expenses incurred in the normal production cycle, excluding interest, depreciation, family living, income tax and investments. |
| OPERATING LOAN | A short-term loan made to acquire assets used to complete the production cycle. Operating or short-term loans are usually paid back in a year or less. |
| OPERATING RECEIPTS | Receipts generated from the normal production cycle, such as sale of crops, livestock, and custom work. Excludes money from the sale of capital assets. |
| OPERATING RATIO | Total operating expenses divided by operating receipts. |
| OPPORTUNITY COST | The cost that is measured by the income a factor of production would receive in its best alternative use. |
| OPTIONS | In futures contract trading, an option gives the owner the right to buy (call option) or sell (put option) a futures contract for a certain price, called the strike price, for a limited period of time. |
| OUTFLOWS | All expenditures by a business, individual, or entity regardless of how they were generated. |
| OUTPUT | Unit of production resulting from the combination of variable and fixed inputs. The quantity of goods and services produced. |
| OVERHEAD | Expenses incurred in the operation of a business that cannot conveniently be attributed to the production of a specific commodity, product, or service. |
| OWNER EQUITY | Assets minus liabilities. Use this term when presenting a balance sheet for a business enterprise that contains no personal information. Also called EQUITY CAPITAL or NET WORTH. |
| OWNER'S EQUITY RATIO | Net worth divided by total assets. Shows the proportion of a firm's total assets belonging to the firm's owners. |
| PARITY PRICE | A hypothetical price which a farmer must receive for a commodity to be able to buy the same amount of goods and services now that it would have bought in some base-year time period. |
| PARTIAL BUDGETING | - Comparison of projected costs and returns associated with some change in the operation of the business. The components of the partial budget are added revenue, reduced expense, added expense, and reduced revenue. |
| PARTNERSHIP | A business entity created when two or more persons join together to conduct a business and to share in its profits and losses. |
| PATRON | A member and customer of a cooperative. |
| PATRONAGE DIVIDENDS | In a cooperative, the portion of business profits (net operating savings) returned to a member doing business with the cooperative. The amount is determined according to the percentage of business generated by the member, not by the percentage of stock owned by the member. |
| PERSONAL PROPERTY | Property that is not permanently in place but is temporary or movable. In general, all property that is not real property. |
| PERFECT COMPETITION | A marketplace where there are many businesses producing the same product and many buyers are buying the product. No single buyer or seller can influence the price. No producer or buyer is so large as to control or perceptively affect market supply or demand. Also called pure competition. |
| PREPAID EXPENSES | Prepaid expenses includes amounts for feed, seed, fertilizer, chemicals, and other inputs which have been paid from the farm account, but not yet received or used in production. |
| PRESENT VALUE | The value, at this point in time, of income to be received at some future time. See COMPUNDING and DISCOUNTING. |
| PRICE CYCLE | Changes in price which tend to follow a repetitive pattern over a period of years. |
| PRICE SEASONABILITY | Changes in price which tend to follow a predictable pattern within a year. |
| PRINCIPAL | An amount of money borrowed, invested, or used on which interest accrues. |
| PROBATE | The procedure or process of establishing the validity of the will of the deceased and administering the settling of an estate. |
| PRODUCER | A person or firm who either produces, manufactures, or creates utility in a commodity or a service as it moves through the marketing channel. |
| PRODUCTS | Items that satisfy the wants and needs of consumers or customers. Also called OUTPUT, GOODS and SERVICES. |
| PRODUCTION | A process that transforms one or more inputs into one or more products. |
| PROFIT | The excess of receipts over the payments for all factors of productions (accounting concept). The excess of receipts over the value of all factors of production. For management, it usually refers to a return to some residual. |
| PROFIT CENTER | The profit making activities within your business (i.e., pork, cattle, and certain crops, etc). |
| PRO FORMA | projection or estimate of future performance. As in a pro forma income statement. |
| PROJECTED ANALYSIS | A financial estimate of what a business or enterprise will be able to do at point in time in the future. Often it is a projected cash flow that shows expected receipts versus expected expenses. |
| PUT OPTION | The right to sell an underlying futures contract. Put does not obligate a sale, it only gives the right of the owner of the contract the right to sell. |
| QUANTITY DEMANDED | The quantity of a good or service consumers are willing and able to purchase at a given price in a specific time period |
| QUANTITY SUPPLIED | The quantity of a good or service producers are willing and able to produce (and sell) at a given price in a specific time period |
| QUICK RATIO (ACID TEST) | Cash and receivables divided by current liabilities. |
| QUIT CLAIM DEED | A written statement that the seller of property gives to the buyer that "gives up" only the seller’s right to the property. The property may have other claims from outside parties. |
| RATIO | Relationship in quantity, amount, or size between two or more things. |
| REAL PROPERTY | Land, and generally whatever is erected or growing upon or affixed to the land. |
| RECEIPTS | Cash income flowing into a business. |
| RESOURCES | All inputs used in the production process. |
| RETAINED EARNINGS | The amount of net income that has accumulated in a farm or ranch business since it began that has not been withdrawn by the owner(s) or paid out as dividend to shareholders. Retained earnings are part of owner equity. |
| RETURN ON ASSETS (ROA) | The percentage rate earned on the total assets invested. |
| RETURN ON INVESTMENT | The income or profit realized from an investment. Many times we refer to percentage return on investment. |
| REVENUE | Gross receipts from the sales of farm or ranch products, services, participation in government programs, and other business operations. Receipts may be cash, accounts receivable, or increases in inventories. |
| RISK | Unexpected circumstances where the probability of an event occurring can be empirically determined. |
| SALVAGE VALUE | Value of an asset at the end of its useful life. |
| SERVICES | Intangible things that are produced by a business or firm from combining inputs. Intangible means outputs that are hard to physically touch. See GOODS. Using the term PRODUCTS refers to both goods and services. |
| SHORT | In futures contract trading, the action of taking a position in which one has sold futures contracts (or made a forward contract for sale of the cash commodity) without taking the offsetting action. |
| SHORTAGE | A condition that exists when the quantity supplied is less than the quantity demanded at some given price in a given time period. |
| SIMPLE INTEREST | Product of the principal, the time in years and the annual rate of interest. |
| SINGLE ENTRY | An accounting system that does not maintain debits and credits for each account. |
| SOLE PROPRIETORSHIP | A business where an individual owns, manages, assumes all the risk, and derives all the profits from a business. Also called an individually owned business. |
| SOLVENCY | Firm's ability to meet long run claims against the business. Solvency indicates that total assets exceed total liabilities. To be solvent the net capital ratio should be greater than one. |
| SPECULATOR | A person who attempts to anticipate price changes and through market activities to make profits. In futures contact trading, a speculator is not hedging. |
| SPOT PRICE | The price at which a physical commodity is selling at a given time and place |
| STAGES OF PRODUCTION | The steps that are followed as factors of production are combined to produce a product that is demanded by the final customer or consumer. The steps start at the very basic raw material gathering stage and progress to sale of the finished product to the customer. |
| STORED CROPS | Crops in inventory in which the market value of the crops have yet to be received. |
| SUBCHAPTER S CORPORATION | A business organization that is structured as a corporation and that qualifies as a corporation for all purposes except taxation. |
| SUPPLY | The amount of commodities or services that would be offered for sale by a producer or group of producers (supplier or group of suppliers) in a specific market at a given series of prices during a specific time period, assuming everything else remained constant. |
| SURPLUS | A condition that exists when the quantity supplied is greater than the quantity demanded at some given price. |
| TAXABLE INCOME | Adjusted gross income less all itemized deductions and personal exemptions. |
| TERM DEBT COVERAGE RATIO | This ratio measures the ability of a borrower to cover all required term debt payments. Term Debt Coverage |
| THEORETICAL CAPACITY | Rate, in acres per hour, at which a machine is working when no time is lost due to turns, unused width, stopping, plugging or breakdowns. |
| TIME VALUE OF MONEY | A method of analyzing capital investments based on the principle that a dollar received today is valued more highly than a dollar received tomorrow or any time in the future. |
| TOTAL COSTS | The sum of all costs (fixed and variable) incurred to produce a given level of production. |
| TOTAL REVENUE | Revenue obtained from the sale of output; found by multiplying the price per unit by the number of units sold. Also called total receipts. |
| TOTAL VALUE PRODUCT | The value of total output produced as the result of using a specific combination of inputs. |
| TOTAL VARIABLE COSTS | The costs of all variable inputs incurred to produce a given level of production. |
| UNCERTAINTY | Where the probability of an event occurring cannot be empirically determined. |
| UNIT OF OUTPUT | Unit of production resulting from the combination of variable and fixed inputs. |
| UTILITY | Usefulness of a commodity as measured by its ability to satisfy human wants and needs. |
| VARIABLE COSTS | Costs which change directly with the level of production. Examples are feed, seed, fertilizer and fuel. Also called OPERATING COSTS. If the manager decided to stop production, these costs are avoidable. |
| VARIABLE INPUT | An input whose usage changes with the level of production. |
| VERTICAL INTEGRATION | Combining or coordinating under a single level of management two or more different stages of production or marketing from the initial raw product to the final product. |
| WARRANTY DEED | A written statement that the seller of property gives to the buyer that says the land is free from legal claims by outside parties. |
| WHOLE FARM OR BUSINESS ANALYSIS | A collection and evaluation of data that helps to identify factors affecting profitability and efficiency of the business. |
| WILL | A legal instrument used to distribute property upon death. |
| WORKING CAPITAL | Current assets minus current liabilities. |
