If the production supply expense inventory value is greater at the beginning of the period, the value is added to the farm cash expenses. If the inventory value is less at the beginning of the period, the value is subtracted from the farm cash expenses. Table 1 outlines an example of accrued expense, production supply expense, and accrued interest expense inventory changes in a farm business. Depreciation Expense Investments that last more than a year are called capital expenditures. Depreciation is the method used to account for capital expenditures in each annual accounting period for the life of the capital asset.
Depreciation is an annual allocation of the cost of capital assets.
It allocates capital costs to the periods in which the asset is used. Purchased breeding livestock are depreciated like any other capital asset. For the income statement, purchased breeding livestock are treated as a capital asset and the cost depreciated. The base value method can be used to value raised breeding livestock. That is, a base value is established for each category of raised animals in the breeding herd.