VAE 511: Livestock Entrepreneurship (1+0)

Profit and Loss Statement

PROFIT AND LOSS STATEMENT (INCOME STATEMENT)

• Profit and Loss statement is an important financial statement employed to assess the performance of farm business.
• It shows the operational efficiency of the farm business in terms of receipts, expenses, profits and losses.
• Generally it is prepared by the entire farm for one agricultural year.
• However, it may also be prepared over a period of time.
• So, we can know the trend in receipts and expenses which indicates the success or failure of a farm business.
• Thus it contains basically three important items, namely., Receipts, Expenses and Net income.

Receipts

• They include returns from all the enterprises in the farm.
• It also includes the appreciation in the value of assets, gifts, many other types of receipts etc.,.
• However the returns from the sale of capital assets such as land, buildings, machinery, etc. are not counted as receipts.

Expenses

• All the expenses and the variable inputs are taken as operational expenses which includes the interests on working capital.
• The fixed expenses include, depreciation, interests on fixed capital, rental value of owned land, land revenue, etc.
• The amount spent on the purchase of any capital asset does not come under expenses.

Net Income

• It is calculated in three different ways.
  • Net Cash Income
    • This is worked out by reducing total cash expenses from the total cash receipts.
  • Net Operating Income
    • It is calculated by reducing the total operational expenses from the gross income.
  • Net Farm Income
    • It is worked out by deducting total fixed expenses from the net operating income.
• Of the three types of net incomes, net farm income is the best measure and is most frequently used for assessing the performance of farm business.