Agriculture Reference
In-Depth Information
Net sales (a)
Sales
represent the dollar value of all the products and services that have been sold during
the period specifi ed on the income statement. These may be either cash or credit sales.
Sometimes customers return products after the products have been purchased. The dollar
value of all returns is usually subtracted from the dollar value of all sales. In some cases, the
returns are shown as a separate entry. Some customers may be given price discounts for the
goods or services they buy. Either the discounted price or the full price may be shown on
the income statement, with a special entry indicating how much discount has been given.
The format to follow in such reporting might look like the following:
Gross sales
- Returns
- Discounts and a llowances
Net sales
In
Table 9.2,
the income statement for BF&G illustrates fi ve accounts for product sales rev-
enues and one account for service income revenue. Formats for the sales fi gure vary, but
more information is contained in this income statement versus one that might report total
sales of $13,410,000 under one general account.
Cost of goods sold (b)
Cost of goods sold
represents the total cost to the agribusiness of goods that were actually
sold during the specifi ed period. In the case of retail fi rms, whose purpose is to resell a previ-
ously purchased product, this category is a rather straightforward accounting of the actual
purchases plus any additional freight charges. In BF&G's case, the grain that was purchased
and resold during the year actually cost the fi rm $7,556,900, the seed cost $511,650,
fertilizer and chemicals cost $1,791,420, etc.
Many types of agribusiness fi rms are involved in processing or manufacturing. In these
cases, determining the cost of goods sold is considerably more complicated because it
involves not only the costs for raw materials but also many internal, direct manufacturing
costs. In such cases, the cost of goods sold section becomes more complex, and it is recom-
mended that the cost of manufactured goods be detailed to show important cost breakdowns.
A seed corn production fi rm would represent a good example of a manufacturing fi rm. They
are assembling inputs to produce and market seed.
To provide an accurate cost of goods sold fi gure, current inventories of raw and fi nished
products must be balanced against those of the previous accounting period. In a manufactur-
ing or processing business, the cost of the raw materials, direct labor, and other resources
that have been used during the accounting period are usually included in the cost of goods
sold, and are subtracted from net sales to calculate the gross margin or gross profi t. Decreases
or increases in inventories from one accounting period to another refl ect consumption of or
additions to inventories, so that the balancing of changes in inventory is intended to refl ect
the actual costs incurred during the current accounting period.
For example, if a fi rm consumed a large amount of raw materials, which naturally would
decrease inventories from the previous accounting period, the net change in inventory would
be refl ected in the cost of goods sold. BF&G had an inventory of $2,800,000 in the previous
period; now it shows an inventory of $2,500,000. The decrease in inventory of $300,000
