Transcript Basic Accounting Principles

Management Information
Systems
Terry DeGroff
Burwell, Nebraska
Books, Records & Controls
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.
Management
• Planning
• Organizing
• Directing
• Controlling
Management Control
• The Best Decisions
Require the Best
Information
Uses and Purposes of
Financial Records
Management
Decision
Making
Income Tax
Reporting
Credit
Acquisition
Keys to Successful
Record Keeping
Keys to Successful Record
Keeping
• Simple yet Useful
Keys to Successful Record
Keeping
• Excessive detail often ends in
Confusion, Frustration, and
Failure
Keys to Successful Record
Keeping
• Meet your Needs,
Abilities, &
Limitations
Keys to Successful Record
Keeping
• Know your Purpose for Keeping
Records
Management
Income
Taxes
Banking
Accounting Rules
• Standards of Communication
Accounting Rules
• Generally Accepted Accounting
Principles
– (GAAP)
Keys to Successful Record
Keeping
• Accurately Match Expenses
with Income
Cash and Accrual
Accounting
Refers to the timing of entries
into the accounting system
Cash Based Records
Transactions are recorded when
cash is received or paid out
Accrual Based Records
Transactions 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
Financial Analysis
Requires
• Basic Set of Financial Statements
Basic Financial Statements
•
•
•
•
Balance Sheet
Income Statement
Statement of Owner Equity
Statement of Cash Flows
Assets = Liabilities + Equity
Equity = Assets - Liabilities
Beginning Balance Sheet
Assets
Liabilities
Ending Balance Sheet
Assets
Equity
Liabilities
Equity
+/- Net Income
+/- Valuation Changes
- Capital withdrawals
+ Capital contributions
Financial Analysis
Requires
• Basic Set of Financial Statements
• Understanding of how to Analyze
and Interpret the Financial
Statements
Ratio Analysis
• Liquidity
• Solvency
• Profitability
• Financial Efficiency
• Repayment Capacity
Financial Analysis
• Objectives
– Measure Financial
Condition
Financial Analysis
• Objectives
– Measure Financial Condition
– Measure Financial Performance
Financial Analysis
All 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 performanceenhancing 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
The End